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As filed with the Securities and Exchange Commission on April 24, 1996
Registration No. 33- 33085
811-06032
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C 20549
________________________________________________________________________________
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.___
Post-Effective Amendment No. 11 X
---- -
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 18 X
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PFL ENDEAVOR VA SEPARATE ACCOUNT
-------------------------------------
(Exact Name of Registrant)
PFL ENDEAVOR VARIABLE ANNUITY ACCOUNT
-----------------------------------------
(Former Name of Registrant)
PFL LIFE INSURANCE COMPANY
--------------------------
(Name of Depositor)
4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499
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(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, including Area Code
(319) 297-8121
Frank A. Camp, Esquire
PFL Life Insurance Company
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499
(Name and Address of Agent for Service)
Copy to:
Frederick R. Bellamy, Esquire
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
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DECLARATION PURSUANT TO RULE 24f-2
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the
Registrant declares that a notice pursuant to Rule 24f-2 for the year ended
December 31, 1995 was filed on February 22, 1996.
______________
It is proposed that this filing will become effective:
_______ immediately upon filing pursuant to paragraph (b) of
Rule 485
X on May 1, 1995 pursuant to paragraph (b) of Rule 485
-------
_______ 60 days after filing pursuant to paragraph (a) (i) of
Rule 485
_______ on __________ pursuant to paragraph (a)(i) of Rule 485
_______ 75 days after filing pursuant to paragraph (a)(ii)
_______ on __________ pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
2
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CROSS REFERENCE SHEET
Pursuant to Rule 495
Showing Location in Part A (Prospectus) and
Part B (Statement of Additional Information)
of Registration Statement of Information Required by Form N-4
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<TABLE>
<CAPTION>
PART A
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Item of Form N-4 Prospectus Caption
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<S> <C>
1. Cover Page.................... Cover Page
2. Definitions................... Definitions
3. Synopsis...................... Summary; Historical Performance
Data
4. Condensed Financial Information Financial Statements
5. General
(a) Depositor................. PFL Life Insurance Company
(b) Registrant................ The Mutual Fund Account
(c) Portfolio Company......... Underlying Funds
(d) Fund Prospectus........... Underlying Funds
(e) Voting Rights............. Voting Rights
6. Deductions and Expenses
(a) General................... Charges and Deductions
(b) Sales Load %.............. Contingent Deferred Sales Charge
(c) Special Purchase Plan..... N/A
(d) Commissions............... Distributor of the Policies
(e) Expenses - Registrant..... N/A
(f) Fund Expenses............. Expenses Including Investment
Advisory Fees
(g) Organizational Expenses... N/A
7. Policies
(a) Persons with Rights....... The Policy; Election of Annuity
Option; Determination of Annuity
Payments; Annuity Commencement
Date; Ownership of the Policy
Voting Rights
(b) (i) Allocation of Premium
Payments............ Allocation of Premiums
(ii) Transfers........... Transfers
(iii) Exchanges........... N/A
(c) Changes................... Addition, Deletion or
Substitution of Investments;
Election of Annuity Option;
Annuity Commencement Date;
Beneficiary; Ownership of the
Policy
</TABLE>
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<TABLE>
<S> <C>
(d) Inquiries................. Summary
8. Annuity Period................ Annuity Options
9. Death Benefit................. Death of Annuitant Prior to
Annuity Commencement Date
10. Purchase and Policy Values
(a) Purchases................. Policy Application and Issuance
of Policies; Premiums
(b) Valuation................. Policy Value; The Mutual Fund
Account Value
(c) Daily Calculation......... The Mutual Fund Account Value
(d) Underwriter............... Distributor of the Policies
1 Redemptions
(a) By Owners................. Surrenders
By Annuitant.............. N/A
(b) Texas ORP................. Restrictions Under the Texas
Optional Retirement Program
(c) Check Delay............... Payment not Honored by Bank
(d) Lapse..................... N/A
(e) Free Look................. Summary
12. Taxes.......................... Certain Federal Income Tax
Consequences
13. Legal Proceedings.............. Legal Proceedings
14. Table of Contents for the
Statement of Statement of Additional
Additional Information Information
<CAPTION>
PART B
------
Item of Form N-4 Statement of Additional
- ---------------- Information Caption
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<S> <C>
15. Cover Page..................... Cover Page
16 Table of Contents.............. Table of Contents
17. General Information
and History.................... (Prospectus) PFL Life Insurance
Company
18. Services.......................
(a) Fees and Expenses
of Registrant............. N/A
(b) Management Policies....... N/A
(c) Custodian................. Custody of Assets
Independent
Auditors.................. Independent Auditors
(d) Assets of Registrant...... Custody of Assets
</TABLE>
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<TABLE>
<S> <C>
(e) Affiliated Person......... N/A
(f) Principal Underwriter..... Distribution of the Policies
19. Purchase of Securities
Being Offered.................. Distribution of the Policies
Offering Sales Load............ N/A
20. Underwriters................... Distribution of the Policies;
(Prospectus) Distributor of the
Policies
21. Calculation of Performance
Data........................... Calculation of Yields and Total
Returns; Other Performance Data
22. Annuity Payments............... (Prospectus) Election of Annuity Option;
(Prospectus) Determination of Annuity
Payments
23. Financial Statements........... Financial Statements
<CAPTION>
PART C -- OTHER INFORMATION
---------------------------
Item of Form N-4 Part C Caption
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<S> <C>
24. Financial Statements
and Exhibits.................. Financial Statements and Exhibits
(a) Financial Statements..... Financial Statements
(b) Exhibits................. Exhibits
25. Directors and Officers of Directors and Officers of the
the Depositor Depositor
26. Persons Controlled By or Under Persons Controlled By or Under
Common Control with the Common Control with the
Depositor or Registrant....... Depositor or Registrant
27. Number of Policyowners........ Number of Policyowners
28. Indemnification............... Indemnification
29. Principal Underwriters........ Principal Underwriters
30. Location of Accounts..........
and Records................... Location of Accounts and Records
31. Management Services........... Management Services
32. Undertakings.................. Undertakings
Signature Page................ Signatures
</TABLE>
______________________________
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PROSPECTUS
May 1, 1996
THE ENDEAVOR VARIABLE ANNUITY
Issued Through
PFL ENDEAVOR VARIABLE ANNUITY ACCOUNT
by
PFL LIFE INSURANCE COMPANY
This Prospectus describes the Endeavor Variable Annuity (the "Policy"), a
Flexible Premium Variable Annuity offered by PFL Life Insurance Company
("PFL"). The Policy is designed to aid in long-term financial planning and
provides for the accumulation of capital by individuals on a tax-deferred
basis for retirement or other long-term purposes. The Policy may be purchased
with a minimum initial Premium Payment of $5,000 if the Policy is purchased on
a non-tax qualified basis ("Nonqualified Policy") or $1,000 if the Policy is
purchased and used in connection with a plan qualifying for favorable income
tax treatment ("Qualified Policy") ($50 if the Policy is purchased and used in
connection with a Tax Deferred 403(b) Annuity). An Owner may make subsequent
additional Premium Payments of at least $50, including payments through
automatic deduction at any time before the Annuity Commencement Date.
The maximum total Premium Payments allowed without prior approval of PFL is
$1,000,000.
Before the Annuity Commencement Date the Owner may allocate Premium Payments
to one or more Subaccounts of the PFL Endeavor Variable Annuity Account (the
"Mutual Fund Account"), to a Fixed Account which guarantees a minimum fixed
return, or to a combination of these (the various options under the Fixed
Account and the Subaccounts of the Mutual Fund Account are the "Investment
Options" available under the Policies). The Mutual Fund Account currently has
nine different Subaccounts (the "Subaccounts"). Assets of each Subaccount are
invested in shares of a corresponding Portfolio of a mutual fund: the WRL
Series Fund, Inc.'s, Growth Portfolio, managed by Janus Capital Corporation,
(the "WRL Growth Portfolio") and the portfolios of the Endeavor Series Trust
(together, the "Underlying Funds"). The Underlying Funds currently consist of
nine Portfolios: the WRL Growth Portfolio, the TCW Managed Asset Allocation
Portfolio; the TCW Money Market Portfolio; the T. Rowe Price International
Stock Portfolio; the Value Equity Portfolio; the Value Small Cap Portfolio;
the Dreyfus U.S. Government Securities Portfolio; the T. Rowe Price Equity
Income Portfolio; and the T. Rowe Price Growth Stock Portfolio. The Underlying
Funds are described in separate prospectuses that accompany this Prospectus.
The Owner bears the entire investment risk for all amounts allocated to the
Mutual Fund Account, including possible loss of principal amount invested.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THIS PROSPECTUS MUST BE ACCOMPANIED OR PRECEDED BY A CURRENT PROSPECTUS FOR
THE ENDEAVOR SERIES TRUST AND FOR THE WRL SERIES FUND, INC.'S, GROWTH
PORTFOLIO. CERTAIN PORTFOLIOS MAY NOT BE AVAILABLE IN ALL STATES.
EVA595
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The Annuity Purchase Value will vary in accordance with the investment
performance of the Subaccounts selected by the Owner. Therefore, the Owner
bears the entire investment risk under this Policy for all amounts allocated
to the Mutual Fund Account. Amounts allocated to the Fixed Account are
guaranteed by PFL and will earn a specified rate of interest declared
periodically.
The Policies provide for monthly annuity payments to be made by PFL for the
life of the Annuitant or for some other period, beginning on the Annuity
Commencement Date selected by the Owner. Prior to the Annuity Commencement
Date, the Owner can transfer amounts among the Investment Options, that is,
between the Fixed Account or Subaccounts of the Mutual Fund Account (some
prohibitions and restrictions apply). The Owner can also elect to surrender
all or any portion of the Cash Value in exchange for a cash withdrawal payment
from PFL; however, all withdrawals may be taxable, subject to a Contingent
Deferred Sales Charge and/or a penalty tax, and withdrawals from the Fixed
Account may be delayed and subject to an Excess Interest Adjustment.
This Prospectus sets forth the information that a prospective investor
should consider before investing in a Policy. A Statement of Additional
Information about the Policy and the Mutual Fund Account which has the same
date as this Prospectus has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. The Statement of
Additional Information is dated May 1, 1996, and is available at no cost to
any person requesting a copy by writing PFL at the Administrative and Service
Office or by calling 1-800-525-6205. The table of contents of the Statement of
Additional Information is included at the end of this Prospectus.
This Prospectus and the Statement of Additional Information generally
describe only the Policies and the Mutual Fund Account, except when the Fixed
Account is specifically mentioned.
Administrative and Service Office:
Financial Markets Division--Variable Annuity Dept.
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001
Please Read This Prospectus Carefully And Retain it For Future Reference.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESPERSON OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN
CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
DEFINITIONS................................................................ 5
SUMMARY.................................................................... 8
CONDENSED FINANCIAL INFORMATION............................................ 17
FINANCIAL STATEMENTS....................................................... 18
HISTORICAL PERFORMANCE DATA................................................ 19
Standardized Performance Data............................................ 19
Other Subaccounts........................................................ 20
T. Rowe Price International Stock Subaccount............................. 21
Non-Standardized Performance Data........................................ 21
PUBLISHED RATINGS.......................................................... 21
PFL LIFE INSURANCE COMPANY................................................. 22
THE ENDEAVOR ACCOUNTS...................................................... 22
The Mutual Fund Account.................................................. 22
The Fixed Account........................................................ 26
Guaranteed Periods..................................................... 27
Dollar Cost Averaging Fixed Account Option............................. 28
Transfers................................................................ 28
Reinstatements........................................................... 29
Telephone Transactions................................................... 29
Dollar Cost Averaging.................................................... 30
Asset Rebalancing........................................................ 30
THE POLICY................................................................. 31
Policy Application and Issuance of Policies.............................. 31
Premium Payments......................................................... 32
Initial Premium Payment................................................ 32
Subsequent Additional Premium Payments................................. 32
Maximum Total Premium Payments......................................... 32
Allocation of Premium Payments......................................... 32
Payment Note Honored by Bank........................................... 32
Annuity Purchase Value................................................... 32
The Mutual Fund Account Value.......................................... 33
Adjusted Annuity Purchase Value (AAPV)................................... 33
Non-participating Policy................................................. 33
DISTRIBUTIONS UNDER THE POLICY............................................. 34
Surrenders............................................................... 34
Nursing Care and Terminal Condition Waiver............................... 35
Excess Interest Adjustments (EIA)........................................ 35
Systematic Payout Option................................................. 36
Annuity Payments......................................................... 37
Annuity Commencement Date.............................................. 37
Election of Payment Option............................................. 37
Premium Tax............................................................ 38
Supplementary Policy................................................... 38
Annuity Payment Options.................................................. 38
Death Benefit............................................................ 41
Death of Annuitant Prior to Annuity Commencement Date.................. 41
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Death On or After Annuity Commencement Date............................ 44
Beneficiary............................................................ 44
Death of Owner........................................................... 44
Restrictions Under the Texas Optional Retirement Program................. 44
Restrictions Under Section 403(b) Plans.................................. 45
Restrictions Under Qualified Policies ................................... 45
CHARGES AND DEDUCTIONS..................................................... 45
Contingent Deferred Sales Charge......................................... 45
Mortality and Expense Risk Charge........................................ 46
Administrative Charges................................................... 47
Premium Taxes............................................................ 48
Federal, State and Local Taxes........................................... 48
Transfer Charge.......................................................... 48
Other Expenses Including Investment Advisory Fees........................ 48
Employee and Agent Purchases............................................. 48
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................... 49
Tax Status of the Policy................................................. 50
Taxation of Annuities.................................................... 50
DISTRIBUTOR OF THE POLICIES................................................ 55
VOTING RIGHTS.............................................................. 55
LEGAL PROCEEDINGS.......................................................... 56
STATEMENT OF ADDITIONAL INFORMATION........................................ 56
Appendix A............................................................... A-1
</TABLE>
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<PAGE>
DEFINITIONS
Accumulation Unit--An accounting unit of measure used in calculating the
Policy Value.
Adjusted Annuity Purchase Value--An amount equal to the Annuity Purchase
Value increased or decreased by any Excess Interest Adjustments.
Administrative and Service Office--Financial Markets Division--Variable
Annuity Dept., 4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499-0001.
Annuitant--The person entitled to receive Annuity Payments after the Annuity
Commencement Date and during whose life any Annuity Payments involving life
contingencies will continue.
Annuity Commencement Date--The date upon which Annuity Payments are to
commence. This date may not be later than the last day of the policy month
starting after the Annuitant attains age 85, except as expressly allowed by
PFL, but in no event later than the last day of the month following the month
in which the Annuitant attains age 95.
Annuity Payment Option or Payment Option--A method of receiving a stream of
Annuity Payments.
Annuity Purchase Value--The sum of the value of all Accumulation Units
credited to a Policy for any particular Valuation Period in the Mutual Fund
Account, plus the value in the Fixed Account.
Annuity Unit--An accounting unit of measure used in the calculation of the
amount of the second and each subsequent Variable Annuity Payment.
Beneficiary--Before the Annuity Commencement Date, the person to whom the
death proceeds will be paid if the Annuitant, who is also the Owner, dies.
After the Annuity Commencement Date, the person to whom payments will be made
if the Annuitant dies. In the event the Annuitant, who is not the Owner, dies
prior to the Annuity Commencement Date, the Owner will become the Annuitant
unless the Owner specifically requests on the application or in writing that
the death benefit be paid upon the Annuitant's death and PFL agrees to such an
election.
Business Day--A day when the New York Stock Exchange is open for business
and that is a regular business day of the Administrative and Service Office.
Cash Value--The Adjusted Annuity Purchase Value less the Contingent Deferred
Sales Charge, if any, and less any applicable premium taxes.
Code--The Internal Revenue Code of 1986, as amended.
Contingent Deferred Sales Charge--The applicable surrender charge, assessed
on certain full or partial withdrawals of Premium Payments to cover expenses
relating to the sale of the Policies.
Current Interest Guarantee--PFL's guarantee to pay a declared Current
Interest Rate on amounts under a Policy allocated to the Fixed Account. A
particular Current Interest Guarantee will be in effect for at least one year.
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<PAGE>
Current Interest Guarantee Period--The period during which a Current
Interest Guarantee is in effect.
Current Interest Rate--The interest rate currently guaranteed to be paid on
amounts under a Policy allocated to the Fixed Account. This interest rate will
always equal or exceed a minimum of 3% (4% for Policies issued before May 1,
1996, and for Policies issued with a form number other than AV254 101 87 196).
Date of Issue--The date the Policy is issued, as shown on the Policy Data
Page.
Due Proof of Death--A certified copy of a death certificate, a certified
copy of a decree of a court of competent jurisdiction as to the finding of
death, a written statement by the attending physician, or any other proof
satisfactory to PFL will constitute Due Proof of Death.
Excess Interest Adjustment--Adjustment to amounts withdrawn and/or
transferred from the Fixed Account Guaranteed Period Options to reflect
changes in interest rates declared by PFL since the payment date. The Excess
Interest Adjustment (EIA) can be positive or negative.
Fixed Account--All of the assets of PFL that are not in separate accounts.
Fixed Annuity Payments--Payments made pursuant to an Annuity Payment Option
which do not fluctuate in amount.
Guaranteed Period Options--The various guaranteed interest rate periods
which may be offered by PFL into which premiums may be paid or amounts
transferred.
Investment Options--Any of the Guaranteed Period Options of the Fixed
Account, and the Dollar Cost Averaging Fixed Account Option, and any of the
Subaccounts of the Mutual Fund Account.
Mutual Fund Account--The PFL Endeavor Variable Annuity Account, which
comprises a portion of the PFL Endeavor VA Separate Account, a separate
account established and registered as a unit investment trust under the
Investment Company Act of 1940 to which Premium Payments under the Policies
may be allocated and which invests in the WRL Series Fund, Inc.'s, Growth
Portfolio and the portfolios of the Endeavor Series Trust.
Nonqualified Policy--A Policy other than a Qualified Policy.
PFL--PFL Life Insurance Company, the issuer of the Policies.
Policy--One of the variable annuity policies offered by this Prospectus.
Policy Anniversary--Each anniversary of the Date of Issue.
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Policy Owner or Owner--The person who may exercise all rights and privileges
under the Policy. The Policy Owner during the lifetime of the Annuitant and
prior to the Annuity Commencement Date is the person designated as the Policy
Owner or a Successor Owner in the application. (See "Death Benefit," p. 41).
Policy Value--The term used for the Annuity Purchase Value in all Policies
except those issued with form number AV254 101 87 196.
Policy Year--A Policy Year begins on the Date of Issue and on each Policy
Anniversary.
Premium Payment--An amount paid to PFL by the Policy Owner or on the Policy
Owner's behalf as consideration for the benefits provided by the Policy.
Qualified Policy--A Policy that has received favorable tax treatment under
Section 401, 403(b), 408, 457 or any other similar provision of the Code.
Subaccount--A segregated account within the Mutual Fund Account which
invests in a specified Portfolio of the Underlying Funds.
Successor Policy Owner--A person appointed by the Policy Owner to succeed to
ownership of the Policy in the event of the death of the Policy Owner who is
not the Annuitant before the Annuity Commencement Date.
Underlying Funds--The WRL Series Fund, Inc.'s Growth Portfolio, managed by
Janus Capital Corporation, and the portfolios of the Endeavor Series Trust.
Valuation Period--The period of time from one determination of Accumulation
Unit and Annuity Unit values to the next subsequent determination of values.
Such determination shall be made on each Business Day.
Variable Annuity Payments--Payments made pursuant to an Annuity Payment
Option which fluctuate as to dollar amount or payment term in relation to the
investment performance of the specified Subaccounts within the Mutual Fund
Account.
Written Notice or Written Request--Written notice, signed by the Policy
Owner, that gives PFL the information it requires and is received at the
Administrative and Service Office. For some transactions, PFL may accept an
electronic notice such as telephone instructions. Such electronic notice must
meet the requirements PFL establishes for such notices.
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<PAGE>
THE ENDEAVOR VARIABLE ANNUITY
SUMMARY
THE POLICY
The Endeavor Variable Annuity is a Flexible Premium Variable Annuity which
can be purchased on a non- tax qualified basis ("Nonqualified Policy") or with
the proceeds from certain plans qualifying for favorable federal income tax
treatment ("Qualified Policy"). The Owner allocates the Premium Payments among
the two Endeavor Accounts of PFL Life Insurance Company ("PFL"): the PFL
Endeavor Variable Annuity Account, (the "Mutual Fund Account") and the Fixed
Account.
POLICY FEATURES
Certain features described below may only be available to Policies purchased
after the effective date of the Policy form number used.
Only Policies issued on or after May 1, 1996, with policy form number AV254
101 87 196 (may vary by state) contain the following features: Excess Interest
Adjustment, Dollar Cost Averaging Fixed Account Option, Asset Rebalancing, and
a minimum effective annual interest rate of 3% in the Fixed Account along with
Guaranteed Period Options. References to these features in this Prospectus
apply only to those Policies.
THE ACCOUNTS
The Mutual Fund Account. The Mutual Fund Account is a separate account of
PFL, which invests exclusively in shares of the eight portfolios of the
Endeavor Series Trust and the WRL Growth Portfolio of the WRL Series Fund,
Inc. (collectively, the "Underlying Funds"). The Endeavor Series Trust is a
mutual fund managed by Endeavor Investment Advisers, a general partnership
between Endeavor Management Co. and AUSA Financial Markets, Inc., which
contracts with TCW Funds Management, Inc. (a subsidiary of The TCW Group,
Inc.), T. Rowe Price Associates, Inc., OpCap Advisors (formerly known as Quest
for Value Advisors) (a subsidiary of Oppenheimer Capital), The Dreyfus
Corporation, a wholly-owned subsidiary of Mellon Bank, N.A.), the successor to
The Boston Company Asset Management, Inc., and Rowe Price-Fleming
International, Inc. for investment advisory services. The WRL Growth
Portfolio, managed by Janus Capital Corporation, is a portfolio within the WRL
Series Fund, Inc. which is a mutual fund whose investment adviser is Western
Reserve Life Assurance Co. of Ohio ("Western Reserve"), an affiliate of PFL.
Western Reserve contracts with Janus Capital Corporation as a sub-adviser to
the WRL Growth Portfolio for investment advisory services. The Underlying
Funds currently have nine Portfolios: the WRL Growth Portfolio, managed by
Janus Capital Corporation; the TCW Managed Asset Allocation Portfolio
(formerly, the Managed Asset Allocation Portfolio); the TCW Money Market
Portfolio (formerly, the Money Market Portfolio); the T. Rowe Price
International Stock Portfolio; the Value Equity Portfolio (formerly, the Quest
for Value
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Equity Portfolio); the Value Small Cap Portfolio (formerly, the Quest for
Value Small Cap Portfolio); the Dreyfus U.S. Government Securities Portfolio
(formerly, the U. S. Government Securities Portfolio); the T. Rowe Price
Equity Income Portfolio; and the T. Rowe Price Growth Stock Portfolio. Each of
the nine Subaccounts of the Mutual Fund Account invests solely in a
corresponding Portfolio of the Underlying Funds. Because the Annuity Purchase
Value may depend on the investment experience of the selected Subaccounts, the
Owner bears the entire investment risk with respect to Premium Payments
allocated to, and amounts transferred to, the Mutual Fund Account. (See "The
Mutual Fund Account," p. 22
The Fixed Account. The Fixed Account guarantees return of principal and a
minimum annual interest rate of 3% (4% for Policies issued under a form number
other than AV254 101 87 196) return on Premium Payments allocated to, and
amounts transferred to, the Fixed Account. PFL may, in its sole discretion,
declare a higher Current Interest Rate. A Current Interest Rate is guaranteed
for at least one year. (See "The Fixed Account," p. 26.)
Currently PFL anticipates that the total number of Investment Options
offered will not exceed 15. However, PFL reserves the right to offer
additional Investment Options in the future.
PREMIUM PAYMENTS
A Nonqualified Policy may be purchased with an initial Premium Payment of at
least $5,000, and a Qualified Policy generally may be purchased with an
initial Premium Payment of at least $1,000, but a Policy purchased and used in
connection with a Tax Deferred 403(b) Annuity may be purchased with an initial
Premium Payment of at least $50. An Owner may make subsequent additional
Premium Payments of at least $50 each, including payments through
preauthorized check, at any time before the Annuity Commencement Date. The
maximum total Premium Payments allowed without prior approval of PFL, is
$1,000,000. There is nothing deducted from Premium Payments, so all funds are
invested immediately. (But see "Contingent Deferred Sales Charge," p. 45.)
On the Date of Issue, the initial Premium Payment is allocated among the
Investment Options (that is, among the Fixed Account and/or the Subaccounts of
the Mutual Fund Account) in accordance with the allocation percentages
specified by the Owner in the Policy application. Any allocation must be in
whole percents, and the total allocation must equal 100%. Allocations for
additional Premium Payments may be changed by sending Written Notice to PFL's
Administrative and Service Office. (See "Premium Payments," p. 32.)
TRANSFERS BEFORE THE ANNUITY COMMENCEMENT DATE
An Owner can transfer values from one Subaccount to another within the
Mutual Fund Account or to the Fixed Account, or from the Guaranteed Period
Options of the Fixed Account to the Mutual Fund Account. The minimum amount
which may be transferred is $500, or the entire
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<PAGE>
Subaccount (or Guaranteed Period Option) value, whichever is less. However,
following a transfer out of a particular Subaccount or Guaranteed Period
Option, at least $500 must remain in that Subaccount or Guaranteed Period
Option. Transfers currently may be made either by telephone (subject to the
provisions described below under "Telephone Transactions," p. 29) or by
sending Written Notice to the Administrative and Service Office.
An Owner may choose which Guaranteed Period Option to transfer to or from.
Transfers (and withdrawals) from a Guaranteed Period Option prior to the end
of a Guaranteed Period are subject to the Excess Interest Adjustment which
could be positive or negative. (see "Excess Interest Adjustment," p. 35.)
Transfers from the Dollar Cost Averaging Fixed Account Option (see "Dollar
Cost Averaging Fixed Account Option," p. 28), except through Dollar Cost
Averaging, are not allowed. Except for Policies issued on or after May 1,
1996, and with form number AV254 101 87 196, transfers from the Three Year
Option of the Fixed Account are subject to a yearly limit equal to the greater
of 25% of the current policy value in the Three Year Option Fixed Account, or
the amount transferred out of the Three Year Option Fixed Account during the
prior Policy Year.
If the Excess Interest Adjustment (at the time of a transfer request only)
from any Guaranteed Interest Rate Period Option is a negative adjustment, then
the maximum amount that can be transferred is 25% of that Option's Annuity
Purchase Value, less amounts previously transferred out of that Option during
the current policy year. No maximum will apply to amounts transferred from any
Guaranteed Period if the Excess Interest Adjustment is a positive adjustment
at the time of transfer.
A $10 charge may be imposed for each transfer in excess of 12 per Policy
Year, but currently there is no charge for any transfers. (See "Transfers," p.
28.)
SURRENDERS
The Owner may elect to surrender all or a portion of the Cash Value ($500
minimum) in exchange for a cash withdrawal payment from PFL at any time prior
to the earlier of the Annuitant's death or the Annuity Commencement Date. The
Cash Value equals the Adjusted Annuity Purchase Value less any applicable
Contingent Deferred Sales Charge (described below) and any applicable premium
taxes. A surrender request must be made by Written Request, and a request for
a partial surrender must specify the Subaccount(s) or Guaranteed Period
Options from which the withdrawal is requested. There is currently no limit on
the frequency or timing of withdrawals. (See "Surrenders," p. 34), although
for Qualified Policies the retirement plan or applicable law may restrict
and/or penalize withdrawals. In addition to the Contingent Deferred Sales
Charge, any applicable Excess Interest Adjustment, and any applicable premium
taxes, surrenders may be subject to income taxes and a 10% tax penalty.
- 10 -
<PAGE>
NURSING CARE AND TERMINAL CONDITION WAIVER
For Policies issued with form number AV254 101 87 196 or with endorsement AE
890 196 or a similar endorsement (depending on the state of issuance), the
Contingent Deferred Sales Charge, Excess Interest Adjustment, and partial
withdrawals adjustment as described in the Guaranteed Minimum Death Benefit
calculation, are not imposed on partial or complete surrenders if the Owner:
1) has been confined in a hospital or nursing facility for 30 consecutive days
or 2) has been diagnosed as having a terminal condition as defined in the
Policy or endorsement. (This benefit is not available in all states--see the
Policy or endorsement for details.)
CHARGES AND DEDUCTIONS
Contingent Deferred Sales Charge. In order to permit investment of the
entire Premium Payment, PFL does not deduct sales or other charges at the time
of investment. However, a Contingent Deferred Sales Charge of up to 7% of the
amount withdrawn is imposed on certain full or partial withdrawals of Premium
Payments in order to cover expenses relating to the sale of the Policies. The
applicable Contingent Deferred Sales Charge is based on the period of time
elapsed since payment of the Premium Payment(s) being withdrawn, and there
will be no Contingent Deferred Sales Charge imposed seven or more years after
a Premium Payment was paid. For purposes of determining the applicable
Contingent Deferred Sales Charge, Premium Payments are considered to be
withdrawn on a "first in--first out" basis. (See "Contingent Deferred Sales
Charge," p. 45.) Amounts withdrawn in the first Policy Year, or the second and
all subsequent withdrawals in any other Policy Year, or in excess of 10% of
the Annuity Purchase Value even if it is the first withdrawal in any Policy
Year, may be subject to an Excess Interest Adjustment and to a Contingent
Deferred Sales Charge (of up to 7%). (Put another way, after the first Policy
Year, up to 10% of the Annuity Purchase Value may be withdrawn without an
Excess Interest Adjustment and without a Contingent Deferred Sales Charge if
it is the first withdrawal in the Policy Year).
Excess Interest Adjustment. Withdrawals and transfers out of Fixed Account
Guaranteed Interest Rate Period Options are subject to an Excess Interest
Adjustment, which could eliminate all interest in excess of the minimum
guaranteed effective annual interest rate of 3%. (The Excess Interest
Adjustment could also result in the crediting of additional interest). See
"Excess Interest Adjustment," p. 35.
Account Charges. PFL deducts a daily charge equal to a percentage of the net
assets in the Mutual Fund Account for the mortality and expense risks assumed
by PFL. The effective annual rate of this charge is 1.25% of the value of the
Account's net assets. (See "Mortality and Expense Risk Charge," p. 46.)
PFL also deducts a daily Administrative Charge from the net assets of the
Mutual Fund Account to partially cover expenses incurred by PFL in connection
with the administration of the Account and the Policies. The effective annual
rate of this charge is .15% of the value of each Subaccount of the Mutual Fund
Account's net assets. (See "Administrative Charges," p. 47.)
PFL guarantees that the account charges for mortality and expense risks and
administrative expenses will not exceed a total of 1.40%.
- 11 -
<PAGE>
Policy Charges. There is also an annual Policy Maintenance Charge each year
for Policy maintenance and related administrative expenses. This charge is the
lesser of 2% of the Policy Value or $35 per year and is deducted only from the
Mutual Fund Account. For Policies issued on or after May 1, 1995, either with
(i) form number AV254 101 87 196 or with (2) Endorsement AE 871 295, this
charge is waived if the sum of all Premium Payments made less the sum of all
partial withdrawals is at least $50,000 on the Policy Anniversary. THIS CHARGE
WILL NOT BE INCREASED IN THE FUTURE. (See "Administrative Charges," p. 47.)
Taxes. PFL may incur premium taxes relating to the Policies. When permitted
by state law, PFL will not deduct any premium taxes related to a particular
Policy from the Annuity Purchase Value until withdrawal of all Annuity
Purchase Value, payment of the death benefit, or until the Annuity
Commencement Date. (See "Premium Taxes," p. 48.)
No charges are currently made against any of the Accounts for federal,
state, or local income taxes. Should PFL determine that any such taxes may be
imposed with respect to any of the Accounts, PFL may deduct such taxes from
amounts held in the relevant Account. (See "Federal, State and Local Taxes,"
p. 48.)
Charges Against the Underlying Funds. The value of the net assets of the
Subaccounts of the Mutual Fund Account will reflect the investment advisory
fee and other expenses incurred by the Underlying Funds.
Expense Data. The charges and deductions are summarized in the following
tables. This tabular information regarding expenses assumes that the entire
Annuity Purchase Value is in the Mutual Fund Account.
<TABLE>
<CAPTION>
DREYFUS
TCW U.S. T. ROWE T. ROWE
TCW MANAGED T. ROWE PRICE GOVERNMENT PRICE PRICE
MONEY ASSET INTERNATIONAL VALUE VALUE SECURITIES EQUITY GROWTH WRL
MARKET ALLOCATION STOCK EQUITY SMALL CAP PORTFOLIO INCOME STOCK GROWTH
------ ---------- ------------- ------ --------- ---------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Policy Owner Transaction
Expenses/1/............
Sales Load On Purchase
Payments............... 0 0 0 0 0 0 0 0 0
Maximum Contingent
Deferred Sales Charge
(as a % of Premium
Payment
Surrendered)/2/........ 7% 7% 7% 7% 7% 7% 7% 7% 7%
Surrender Fees.......... 0 0 0 0 0 0 0 0 0
-------------------------------------------------------------------------------------------
Annual Policy Fee $35 Per Policy
-------------------------------------------------------------------------------------------
Transfer Fee First 12 Transfers Per Year: NO FEE
More than 12 in One Year: Currently no fee
MUTUAL FUND ACCOUNT
ANNUAL EXPENSES
(as a percentage of
account value)
Mortality and Expense
Risk Fees.............. 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25%
Administrative Charge... 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15%
---- ---- ---- ---- ---- ---- ---- ---- ----
Total Mutual Fund
Account Annual
Expenses............... 1.40% 1.40% 1.40% 1.40% 1.40% 1.40% 1.40% 1.40% 1.40%
UNDERLYING FUNDS ANNUAL
EXPENSES/3/
(as a percentage of
average net assets)
Management Fees ........ 0.50% 0.75% 0.90% 0.80% 0.80% 0.65% 0.80% 0.80% 0.80%
Other Expenses ......... 0.10% 0.09% 0.25% 0.06% 0.07% 0.19% 0.35% 0.46% 0.06%
---- ---- ---- ---- ---- ---- ---- ---- ----
Total Underlying Funds
Annual Expenses/4/..... 0.60% 0.84% 1.15% 0.86% 0.87% 0.84% 1.15% 1.26% 0.86%
</TABLE>
- 12 -
<PAGE>
- ----------------------------------
/1/The Contingent Deferred Sales Charge and Transfer Fee, if any is imposed,
apply to each Policy, regardless of how Annuity Purchase Value is allocated
among the Mutual Fund Account and the Fixed Account. The Annual Policy Fee
and Mutual Fund Account Annual Expenses do not apply to the Fixed Account.
(See "Other Expenses Including Investment Advisory Fees," p. 48.)
/2/The Contingent Deferred Sales Charge is decreased based on the Policy year
in which the withdrawal is made, from 7% in the Policy year in which the
Premium Payment was made to 0% in the eighth Policy Year after the Premium
Payment was made.
/3/The fee table information relating to the Underlying Fund was provided to
PFL by the Underlying Fund, and PFL has not independently verified such
information.
/4/The Manager has agreed, until terminated by the Manager, to assume expenses
of the Portfolios that exceed the following rates: TCW Money Market--0.99%;
TCW Managed Asset Allocation--1.25%; T. Rowe Price International Stock--
1.53%; Value Equity--1.30%; Value Small Cap--1.30%; Dreyfus U.S. Government
Securities--1.00%; T. Rowe Price Equity Income--1.30%; T. Rowe Price Growth
Stock--1.30%.
Examples
An Owner would pay the following expenses on a $1,000 investment, assuming a
5% annual return on assets and assuming the entire Annuity Purchase Value is
in the applicable Subaccount:
1. If the Policy is surrendered at the end of the applicable time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
TCW Money Market Portfolio...................... $ 91 $ 115 $141 $240
TCW Managed Asset Allocation Portfolio.......... $ 93 $ 122 $153 $264
T. Rowe Price International Stock Portfolio..... $ 96 $ 131 $169 $295
Value Equity Portfolio.......................... $ 94 $ 123 $154 $266
Value Small Cap Portfolio....................... $ 94 $ 123 $155 $267
Dreyfus U.S. Government Securities Portfolio.... $ 93 $ 122 $153 $264
T. Rowe Price Equity Income Portfolio........... $ 97 $ 132 $170 $299
T. Rowe Price Growth Stock Portfolio............ $ 98 $ 135 $176 $312
WRL Growth Portfolio............................ $ 94 $ 123 $154 $266
2. If the Policy is annuitized at the end of the applicable time period:
TCW Money Market Portfolio...................... $ 21 $ 65 $111 $240
TCW Managed Asset Allocation Portfolio.......... $ 23 $ 72 $123 $264
T. Rowe Price International Stock Portfolio..... $ 26 $ 81 $139 $295
Value Equity Portfolio.......................... $ 24 $ 73 $124 $266
Value Small Cap Portfolio....................... $ 24 $ 73 $125 $267
Dreyfus U.S. Government Securities Portfolio.... $ 23 $ 72 $123 $264
T. Rowe Price Equity Income Portfolio........... $ 27 $ 82 $140 $299
T. Rowe Price Growth Stock Portfolio............ $ 28 $ 85 $146 $312
WRL Growth Portfolio............................ $ 24 $ 73 $124 $266
</TABLE>
- 13 -
<PAGE>
3. If the Policy is not surrendered or annuitized:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
TCW Money Market Portfolio...................... $ 21 $ 65 $111 $240
TCW Managed Asset Allocation Portfolio.......... $ 23 $ 72 $123 $264
T. Rowe Price International Stock Portfolio..... $ 26 $ 81 $139 $295
Value Equity Portfolio.......................... $ 24 $ 73 $124 $266
Value Small Cap Portfolio....................... $ 24 $ 73 $125 $267
Dreyfus U.S. Government Securities Portfolio.... $ 23 $ 72 $123 $264
T. Rowe Price Equity Income Portfolio........... $ 27 $ 82 $140 $299
T. Rowe Price Growth Stock Portfolio............ $ 28 $ 85 $146 $312
WRL Growth Portfolio............................ $ 24 $ 73 $124 $266
</TABLE>
The above tables are intended to assist the Owner in understanding the costs
and expenses that will be borne, directly or indirectly. These include the
expenses of the Underlying Funds. See "Charges and Deductions," p. 45, and the
Underlying Funds' prospectuses. In addition to the expenses listed above,
premium taxes may be applicable.
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. The
figures and data for Underlying Fund annual expenses have been provided by
Western Reserve Life Assurance Co. of Ohio and Endeavor Investment Advisers,
and while PFL does not dispute these figures, PFL does not guaranty their
accuracy.
In these examples, the $35 Annual Policy Fee is reflected as a charge of
.0661% based on an average Annuity Purchase Value of $52,980.
DEATH BENEFIT
In the event that the Annuitant who is not the owner dies prior to the
Annuity Commencement Date, the Owner will become the Annuitant unless the
Owner specifically requests on the application or in writing that the death
benefit be paid upon the Annuitant's death and PFL agrees to such an election.
Upon receipt of proof that the Annuitant, who is the Owner, has died before
the Annuity Commencement Date, the Death Benefit is calculated and is payable
to the Beneficiary when we receive an election of the method of settlement and
return of the Policy.
The amount of the death benefit will depend on the state where the Policy is
purchased and may depend on the death benefit option elected by the Owner.
However, the death benefit will always be at least equal to the greater of the
Annuity Purchase Value or the Cash Value on the date due proof of death and
election of the method of settlement are received by PFL.
When the Policy is issued with form number AV254 101 87 196 or with
Endorsement AE 871 295, the Owner has the "one-time" option (except if either
the Annuitant or the Owner is age 75 or older) of choosing either a
- 14 -
<PAGE>
"5% Compound Death Benefit" or an "Annual Step-Up Death Benefit." The 5%
Compound Death Benefit is the total Premium Payments less any "Adjusted
Partial Withdrawal" (see p. 42) plus interest at an effective annual rate of
5.0%. The Annual Step-Up Death Benefit is the highest Annuity Purchase Value
on any Policy Anniversary prior to the earlier of the owner's 81st birthday or
the date of death, plus any Premium Payments paid less any "Adjusted Partial
Withdrawals" since that anniversary.
When the Policy is issued under a prior form or without Endorsement AE 8712
95, the death benefit will be at least equal to the sum of the Premium
Payments less withdrawals and charges made, plus interest at a 5% effective
annual rate to the Annuitant's date of death.
The Death Benefit does not apply on the death of an Owner if the Owner is
not the Annuitant. If an Owner who is not the Annuitant dies before the
Annuity commencement date, the amount payable under the Policy upon surrender
will be the Cash Value. These death benefit provisions may vary depending on
which state the Policy is issued in and when it was issued. No Contingent
Deferred Sales Charge and no Excess Interest Adjustment is imposed upon
amounts received as a Death Benefit. The Death Benefit may be paid as either a
lump sum cash benefit or as an Annuity as permitted by federal or state law.
(See "Death Benefit," p. 41.)
VARIATIONS IN POLICY PROVISIONS
Certain features described below may only be available to policies purchased
after the effective date of the policy form number used.
Only policies issued on or after May 1, 1996 with policy form number AV254
101 87 196 (may vary by state) contain the following features: Excess Interest
Adjustment, Dollar Cost Averaging Fixed Account Option, Asset Rebalancing, and
an effective annual interest rate of 3% in the Fixed Account along with
Guaranteed Period Options. Thus, references to these features in this
Prospectus will only apply to such Policies.
Certain provisions of the Policies may vary from the descriptions in this
Prospectus in order to comply with different state laws. Policies issued
before form number AV254 101 87 196 became available, or without Endorsement
AE 871 295 may vary from the description in this Prospectus in regard to Death
Benefits. For these Policies, the Death Benefit is payable on the Annuitant's
death prior to the Annuity Commencement Date (regardless of whether the
Annuitant is also the Owner). See the Policy itself for variations. Any such
variations will be included in the Policy itself or in riders or endorsements.
RIGHT TO RETURN THE POLICY
The Policy Owner may, until the end of the period of time specified in the
Policy, examine the Policy and return it for a refund. The applicable period
will depend on the state in which the Policy is issued. In most states it is
twenty (20) days after the Policy is delivered to the Policy Owner. The
- 15 -
<PAGE>
amount of refund will also depend on the state in which the Policy is issued.
Ordinarily, the amount of the refund will be the sum of all Premium Payments
made under the Policy and the accumulated gains or losses in the Mutual Fund
Account, if any. However, some states may require a return of the premium(s)
paid, or the greater of the premium(s) paid or Cash Value. PFL will pay the
refund within seven (7) days after it receives written notice of cancellation
and the returned Policy.
If the Policy is issued in California (a) to an Owner who is age 60 or more
and (b) with a Premium Payment of $10,000 or more, then the amount returned
will be the Annuity Purchase Value. If the Policy is issued in California (a)
to an Owner who is age 59 or less or (b) with a Premium Payment of less than
$10,000, then the amount returned will be the Premium Payment and any charges
deducted.
FEDERAL INCOME TAX CONSEQUENCES OF INVESTMENT IN THE POLICY
With respect to Owners who are natural persons, there should be no federal
income tax on increases in the Annuity Purchase Value until a distribution
under the Policy occurs (e.g., a surrender or Annuity Payment) or is deemed to
occur (e.g., a pledge or assignment of a Policy). Generally, a portion of any
distribution or deemed distribution will be taxable as ordinary income. The
taxable portion of certain distributions will be subject to withholding unless
the recipient elects otherwise. In addition, a penalty tax may apply to
certain distributions or deemed distributions under the Policy. (See "Certain
Federal Income Tax Consequences," p. 49.)
INQUIRIES, WRITTEN NOTICES AND WRITTEN REQUESTS
Any questions about procedures or the Policy, or any Written Notice or
Written Request required to be sent to PFL, should be sent to the
Administrative and Service Office, Financial Markets Division--Variable
Annuity Dept., 4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499-0001.
Telephone requests and inquires may be made by calling 800-525-6205. All
inquiries, Notices and Requests should include the Policy number, the Owner's
name and the Annuitant's name.
* * *
Note: The foregoing summary is qualified in its entirety by the detailed
information in the remainder of this Prospectus and in the Statement of
Additional Information and in the prospectuses for the Underlying Funds and in
the Policy, all of which should be referred to for more detailed information.
This Prospectus generally describes only the Policy and the Mutual Fund
Account. Separate prospectuses describe the Underlying Funds. (There is no
prospectus for the Fixed Account since interests in the Fixed Account are not
securities. See "The Fixed Account," p. 26.)
- 16 -
<PAGE>
CONDENSED FINANCIAL INFORMATION
The Accumulation Unit Values and the number of Accumulation Units
outstanding for each Subaccount from the date of inception:
<TABLE>
<CAPTION>
TCW MONEY MARKET SUBACCOUNT*
--------------------------------------------------
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF YEAR END OF YEAR AT END OF YEAR
----------------- ------------- ------------------
<S> <C> <C> <C>
1995......................... $1.072424 $1.115718 21,103,926.232
1994......................... $1.051501 $1.072424 17,836,839.874
1993......................... $1.043134 $1.051501 12,190,857.625
1992......................... $1.028030 $1.043134 4,334,947.760
1991(/1/).................... $1.000000 $1.028030 1,855,372.177
<CAPTION>
TCW MANAGED ASSET ALLOCATION SUBACCOUNT**
--------------------------------------------------
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF YEAR END OF YEAR AT END OF YEAR
----------------- ------------- ------------------
<S> <C> <C> <C>
1995......................... $1.301669 $1.577873 122,974,873.030
1994......................... $1.393488 $1.301669 130,909,987.116
1993......................... $1.209859 $1.393488 69,252,242.665
1992......................... $1.125386 $1.209859 11,637,563.615
1991(/1/).................... $1.000000 $1.125386 3,775,618.731
<CAPTION>
T. ROWE PRICE INTERNATIONAL STOCK SUBACCOUNT
--------------------------------------------------
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF YEAR END OF YEAR AT END OF YEAR
----------------- ------------- ------------------
<S> <C> <C> <C>
1995......................... $1.073958 $1.171039 75,065,177.549
1994......................... $1.156482 $1.073958 76,518,044.179
1993......................... $0.989782 $1.156482 45,569,234.403
1992......................... $1.041235 $0.989782 6,368,485.858
1991(/1/).................... $1.000000 $1.041235 3,068,279.081
<CAPTION>
VALUE EQUITY SUBACCOUNT***
--------------------------------------------------
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF YEAR END OF YEAR AT END OF YEAR
----------------- ------------- ------------------
<S> <C> <C> <C>
1995......................... $1.045610 $1.387903 46,194,663.692
1994......................... $1.018576 $1.045610 30,512,231.489
1993(/3/).................... $1.000000 $1.018576 10,958,836.984
<CAPTION>
VALUE SMALL CAP SUBACCOUNT****
--------------------------------------------------
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF YEAR END OF YEAR AT END OF YEAR
----------------- ------------- ------------------
<S> <C> <C> <C>
1995......................... $1.072941 $1.206843 40,635,696.978
1994......................... $1.107747 $1.072941 32,607,348.474
1993(/4/).................... $1.000000 $1.107747 11,449,956.948
</TABLE>
- 17 -
<PAGE>
<TABLE>
<CAPTION>
DREYFUS U.S. GOVERNMENT SECURITIES PORTFOLIO*****
--------------------------------------------------
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF YEAR END OF YEAR AT END OF YEAR
----------------- ------------- ------------------
<S> <C> <C> <C>
1995......................... $0.985803 $1.124292 8,456,764.729
1994(/5/).................... $0.998670 $0.985803 3,102,671.789
<CAPTION>
T. ROWE PRICE EQUITY INCOME SUBACCOUNT
--------------------------------------------------
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF YEAR END OF YEAR AT END OF YEAR
----------------- ------------- ------------------
<S> <C> <C> <C>
1995(/6/).................... $1.000000 $1.287240 14,943,358.393
<CAPTION>
T. ROWE PRICE GROWTH STOCK SUBACCOUNT
--------------------------------------------------
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF YEAR END OF YEAR AT END OF YEAR
----------------- ------------- ------------------
<S> <C> <C> <C>
1995(/6/).................... $1.000000 $1.353339 14,196,707.745
<CAPTION>
WRL GROWTH SUBACCOUNT
--------------------------------------------------
ACCUMULATION ACCUMULATION NUMBER OF
UNIT VALUE AT UNIT VALUE AT ACCUMULATION UNITS
BEGINNING OF YEAR END OF YEAR AT END OF YEAR
----------------- ------------- ------------------
<S> <C> <C> <C>
1995......................... $10.051117 $14.583843 13,337,196.679
1994......................... $11.114865 $10.051117 12,758,957.591
1993......................... $10.839753 $11.114865 9,252,403.800
1992(/2/).................... $10.000000 $10.839753 1,119,066,376
</TABLE>
- -----------
(1)Period from April 8, 1991 through December 31, 1991.
(2)Period from July 1, 1992 through December 31, 1992.
(3)Period from May 27, 1993 through December 31, 1993.
(4)Period from May 4, 1993 through December 31, 1993.
(5)Period from May 9, 1994 through December 31, 1994.
(6)Period from January 3, 1995 through December 31, 1995.
*Prior to May 1, 1996, known as the Money Market Subaccount.
** Prior to May 1, 1996, known as the Managed Asset Allocation Subaccount.
*** Prior to May 1, 1996, known as the Quest for Value Equity Subaccount.
**** Prior to May 1, 1996, known as the Quest for Value Small Cap Subaccount.
***** Prior to May 1, 1996, known as the U.S. Government Securities
Subaccount.
FINANCIAL STATEMENTS
The financial statements of the Mutual Fund Account and PFL and the
independent auditors' reports thereon are in the Statement of Additional
Information which is available free upon request to the Administrative and
Service Office.
- 18 -
<PAGE>
HISTORICAL PERFORMANCE DATA
STANDARDIZED PERFORMANCE DATA
From time to time, PFL may advertise historical yields and total returns for
the Subaccounts of the Mutual Fund Account. In addition, PFL may advertise the
effective yield of the Subaccount investing in the TCW Money Market Portfolio
(the "TCW Money Market Subaccount"). These figures will be calculated
according to standardized methods prescribed by the Securities and Exchange
Commission ("SEC"). They will be based on historical earnings and are not
intended to indicate future performance.
The yield of the TCW Money Market Subaccount for a Policy refers to the
annualized income generated by an investment under a Policy in the Subaccount
over a specified seven-day period. The yield is calculated by assuming that
the income generated for that seven-day period is generated each seven-day
period over a 52-week period and is shown as a percentage of the investment.
The effective yield is calculated similarly but, when annualized, the income
earned by an investment under a Policy in the Subaccount is assumed to be
reinvested. The effective yield will be slightly higher than the yield because
of the compounding effect of this assumed reinvestment.
The yield of a Subaccount of the Mutual Fund Account (other than the TCW
Money Market Subaccount) for a Policy refers to the annualized income
generated by an investment under a Policy in the Subaccount over a specified
thirty-day period. The yield is calculated by assuming that the income
generated by the investment during that thirty-day period is generated each
thirty-day period over a 12-month period and is shown as a percentage of the
investment.
The total return of a Subaccount of the Mutual Fund Account refers to return
quotations assuming an investment under a Policy has been held in the
Subaccount for various periods of time including, but not limited to, a period
measured from the date the Subaccount commenced operations. When a Subaccount
has been in operation for one, five, and ten years, respectively, the total
return for these periods will be provided. The total return quotations for a
Subaccount will represent the average annual compounded rates of return that
equate an initial investment of $1,000 in the Subaccount to the redemption
value of that investment as of the first day of each of the periods for which
total return quotations are provided.
The yield and total return calculations for a Subaccount do not reflect the
effect of any premium taxes that may be applicable to a particular Policy. The
yield calculations also do not reflect the effect of any Contingent Deferred
Sales Charge that may be applicable to a particular Policy. To the extent that
any or all of a premium tax and/or Contingent Deferred Sales Charge is
applicable to a particular Policy, the yield and/or total return of that
Policy will be reduced. For additional information regarding yields and total
returns calculated using the standard formats briefly summarized above, please
refer to the Statement of Additional Information, a copy of which may be
obtained from the Administrative and Service Office upon request.
- 19 -
<PAGE>
OTHER SUBACCOUNTS
Based on the method of calculation described in the Statement of Additional
Information, the average annual total returns for periods from inception of
the Subaccounts to December 31, 1995, and for the year ended December 31, 1995
were as follows:
<TABLE>
<CAPTION>
ONE YEAR INCEPTION OF
PERIOD ENDED THE SUBACCOUNT
SUBACCOUNT 12/31/95 TO 12/31/95
- ---------- ------------ ---------------
<S> <C> <C>
TCW Managed Asset Allocation(1).................... 15.87% 9.68%
Value Equity(2).................................... 27.45% 12.02%
Value Small Cap(3)................................. 7.08% 5.78%
Dreyfus U.S. Government Securities(4).............. 8.58% 4.28%
T. Rowe Price Equity Income(5)..................... -- 22.75%
T. Rowe Price Growth Stock(6)...................... -- 29.47%
WRL Growth(7)...................................... 39.87% 10.56%
</TABLE>
- -----------
(1) Inception Date--April 8, 1991
(2) Inception Date--May 3, 1993
(3) Inception Date--May 3, 1993
(4) Inception Date--May 9, 1994
(5) Inception Date--January 3, 1995
(6) Inception Date--January 3, 1995
(7) Inception Date--July 1, 1992
Prior to July 1, 1992, the WRL Growth Subaccount had not yet commenced
operations. However, the following is standardized average annual total return
information based on the hypothetical assumption that the WRL Growth
Subaccount had been available to the PFL Endeavor Variable Annuity Account
since inception of the WRL Growth Portfolio:
<TABLE>
<CAPTION>
INCEPTION
OF THE 5 YEAR
PORTFOLIO PERIOD
(10/2/86) TO ENDED
SUBACCOUNT 12/31/95* 12/31/95*
- ---------- ------------ ---------
<S> <C> <C>
WRL Growth............................................... 15.86% 16.03%
</TABLE>
- ----------------------------------
* The performance data for periods prior to the date the WRL Growth Subaccount
commenced operations (July 1, 1992) is based on the performance of the WRL
Series Fund, Inc.'s Growth Portfolio and the assumption that the WRL Growth
Subaccount was in existence for the same period as the WRL Growth Portfolio,
with a level of charges equal to those currently assessed against the
Subaccount or against Owners' contract values under the Policies. The WRL
Growth Portfolio, commenced operations on October 2, 1986. For purposes of
the calculation of the performance data prior to July 1, 1992, the
deductions for the mortality and expense risk charge and administrative
charge are made on a monthly basis, rather than a daily basis. The monthly
deduction is made at the beginning of each month and generally approximates
the performance which would have resulted if the Subaccount had actually
been in existence since the inception of the WRL Growth Portfolio.
Performance data for periods of less than seven years reflect deduction of
the Contingent Deferred Sales Charge.
- 20 -
<PAGE>
T. ROWE PRICE INTERNATIONAL STOCK SUBACCOUNT
Effective January 1, 1995, Rowe Price-Fleming International, Inc. became the
new Adviser to the Global Growth Portfolio. The Portfolio's name has been
changed to the T. Rowe Price International Stock Portfolio and the Portfolio's
shareholders have approved a change in investment objective from investments
in small capitalization companies on a global basis to investments in a broad
range of companies on an international basis (i.e., non-U.S. companies).
Based on the method of calculation described in the Statement of Additional
Information, the average annual total return for the one year period ended
December 31, 1995, was 3.62%.
NON-STANDARDIZED PERFORMANCE DATA
PFL may from time to time also advertise or disclose average annual total
return or other performance data in non-standard formats for a Subaccount of
the Mutual Fund Account. The non-standard performance data may assume that no
Contingent Deferred Sales Charge is applicable, and may also make other
assumptions.
The following non-standardized average annual total return figures are based
on the assumption that the Policy is not surrendered, and therefore the
following figures assume that the Contingent Deferred Sales Charge is not
imposed.
AVERAGE ANNUAL TOTAL RETURNS
(ASSUMING NO CONTINGENT DEFERRED SALES LOAD)
<TABLE>
<CAPTION>
ONE YEAR INCEPTION OF
PERIOD ENDED THE SUBACCOUNT
SUBACCOUNT 12/31/95 TO 12/31/95
- ---------- ------------ --------------
<S> <C> <C>
TCW Managed Asset Allocation........................ 21.14% 10.06%
T. Rowe Price International Stock................... 8.97% 8.97%
Value Equity........................................ 32.65% 13.39%
Value Small Cap..................................... 12.41% 7.26%
Dreyfus U.S. Government Securities.................. 13.97% 7.39%
T. Rowe Price Equity Income......................... -- 28.91%
T. Rowe Price Growth Stock.......................... -- 35.59%
WRL Growth.......................................... 45.00% 11.31%
</TABLE>
All non-standard performance data will be advertised only if the standard
performance data is also disclosed. For additional information regarding the
calculation of other performance data, please refer to the Statement of
Additional Information, a copy of which may be obtained from the
Administrative and Service office upon request.
PUBLISHED RATINGS
PFL may from time to time publish in advertisements, sales literature and
reports to Owners, the ratings and other information assigned to it by one or
more independent rating organizations such as A.M. Best Company,
- 21 -
<PAGE>
Standard & Poor's, and Duff & Phelps. The purpose of the ratings is to reflect
the financial strength and/or claims-paying ability of PFL and should not be
considered as bearing on the investment performance of assets held in the
Mutual Fund Account or of the safety or riskiness of an investment in the
Mutual Fund Account. Each year the A.M. Best Company reviews the financial
status of thousands of insurers, culminating in the assignment of Best's
ratings. These ratings reflect their current opinion of the relative financial
strength and operating performance of an insurance company in comparison to
the norms of the life/health insurance industry. In addition, the claims-
paying ability of PFL as measured by Standard & Poor's Insurance Ratings
Services or Duff & Phelps may be referred to in advertisements or sales
literature or in reports to Owners. These ratings are opinions of an operating
insurance company's financial capacity to meet the obligations of its
insurance policies in accordance with their terms. Claims-paying ability
ratings do not refer to an insurer's ability to meet non-policy obligations
(i.e., debt/commercial paper).
PFL LIFE INSURANCE COMPANY
PFL Life Insurance Company ("PFL"), 4333 Edgewood Road, N.E., Cedar Rapids,
Iowa 52499-0001, is a stock life insurance company. It was incorporated under
the name NN Investors Life Insurance Company, Inc. under the laws of the State
of Iowa on April 19, 1961. It is principally engaged in the sale of life
insurance and annuity policies, and is licensed in the District of Columbia,
Guam, and in all states except New York. As of December 31, 1995, PFL had
assets of approximately $7.2 billion. PFL is a wholly-owned indirect
subsidiary of AEGON USA, Inc., which conducts substantially all of its
operations through subsidiary companies engaged in the insurance business or
in providing non-insurance financial services. All of the stock of AEGON USA,
Inc. is indirectly owned by AEGON n.v. of the Netherlands. AEGON n.v., a
holding company, conducts its business through subsidiary companies engaged
primarily in the insurance business.
THE ENDEAVOR ACCOUNTS
Premium Payments made under a Policy may be allocated to the Mutual Fund
Account, to the Fixed Account, or to a combination of these Accounts.
THE MUTUAL FUND ACCOUNT
The PFL Endeavor Variable Annuity Account comprises a portion of the PFL
Endeavor VA Separate Account of PFL Life Insurance Company (the "Mutual Fund
Account"). The PFL Endeavor VA Separate Account was established as a separate
investment account under the laws of the State of Iowa on January 19, 1990.
The Mutual Fund Account receives and invests the Premium Payments under the
Policies that are allocated to it for investment in shares of the WRL Series
Fund, Inc.'s Growth Portfolio, managed by Janus Capital Corporation, and the
Endeavor Series Trust.
The Mutual Fund Account currently is divided into nine Subaccounts.
Additional Subaccounts may be established in the future at the discretion of
- 22 -
<PAGE>
PFL. Each Subaccount invests exclusively in shares of one of the Portfolios of
the Underlying Funds. Under Iowa law, the assets of the Mutual Fund Account
are owned by PFL, but they are held separately from the other assets of PFL.
To the extent that these assets are attributable to the Cash Value of the
Policies, these assets are not chargeable with liabilities incurred in any
other business operation of PFL. Income, gains, and losses incurred on the
assets in the Subaccounts of the Mutual Fund Account, whether or not realized,
are credited to or charged against that Subaccount without regard to other
income, gains or losses of any other Account or Subaccount of PFL. Therefore,
the investment performance of any Subaccount should be entirely independent of
the investment performance of PFL's general account assets or any other
Account or Subaccount maintained by PFL.
The Mutual Fund Account is registered with the SEC under the Investment
Company Act of 1940 (the "1940 Act") as a unit investment trust and meets the
definition of a separate account under federal securities laws. However, the
SEC does not supervise the management or the investment practices or policies
of the Mutual Fund Account or PFL.
Underlying Funds. The Mutual Fund Account will invest exclusively in shares
of Endeavor Series Trust and the Growth Portfolio of the WRL Series Fund, Inc.
(collectively the "Underlying Funds"). The WRL Series Fund, Inc., and the
Endeavor Series Trust are each a series-type mutual fund registered with the
SEC under the 1940 Act as an open-end, diversified management investment
company./5/ The Underlying Funds currently issue shares of the following nine
Portfolios: The WRL Growth Portfolio, the TCW Managed Asset Allocation
Portfolio (formerly known as the Managed Asset Allocation Portfolio), the TCW
Money Market Portfolio (formerly known as the Money Market Portfolio), the
T. Rowe Price International Stock Portfolio, the Value Equity Portfolio
(formerly known as the Quest for Value Equity Portfolio), the Value Small Cap
Portfolio (formerly known as the Quest for Value Small Cap Portfolio), the
Dreyfus U.S. Government Securities Portfolio (formerly known as the U.S.
Government Securities Portfolio), the T. Rowe Price Equity Income Portfolio,
and the T. Rowe Price Growth Stock Portfolio. The assets of each Portfolio are
held separate from the assets of the other Portfolios, and each Portfolio has
its own distinct investment objectives and policies. Each Portfolio operates
as a separate investment fund, and the income or losses of one Portfolio
generally have no effect on the investment performance of any other Portfolio.
Endeavor Investment Advisers (the "Manager"), an investment adviser
registered with the SEC under the Investment Advisers Act of 1940, is the
Endeavor Series Trust's manager. The Manager selects and contracts with
advisers for investment services for the Portfolios of Endeavor Series Trust,
reviews the advisers' activities, and otherwise performs administerial and
managerial functions for the Endeavor Series Trust. Five advisers, TCW Funds
Management, Inc. (a wholly-owned
- -----------
/5/The registration of the Underlying Funds does not involve supervision of the
management or investment practices or policies of the Underlying Funds by
the SEC.
- 23 -
<PAGE>
subsidiary of The TCW Group, Inc.), T. Rowe Price Associates, Inc., Rowe
Price-Fleming International, Inc. (a joint venture between T. Rowe Price
Associates, Inc. and Robert Fleming Holdings Limited), OpCap Advisors
(formerly known as Quest for Value Advisors) and The Dreyfus Corporation (a
wholly owned subsidiary of Mellon Bank, N.A.), as successor to The Boston
Company Asset Management, Inc., (the "Advisers"), each perform investment
advisory services for particular Portfolios of Endeavor Series Trust. TCW
Funds Management, Inc. is the Adviser for the TCW Managed Asset Allocation
Portfolio and the TCW Money Market Portfolio. T. Rowe Price Associates, Inc.
is the Adviser for the T. Rowe Price Equity Income Portfolio and the T. Rowe
Price Growth Stock Portfolio. Rowe Price-Fleming International, Inc. is the
Adviser for the T. Rowe Price International Stock Portfolio.
OpCap Advisors is the Adviser for the Value Equity Portfolio and the Value
Small Cap Portfolio. The Dreyfus Corporation is the Adviser for the Dreyfus
U.S. Government Securities Portfolio. Western Reserve Life Assurance Co. of
Ohio, an affiliate of PFL, is the Adviser for the WRL Series Fund, Inc. and
contracts with Janus Capital Corporation (also an "Adviser") as a sub-adviser
to the WRL Growth Portfolio. The Adviser of a Portfolio is responsible for
selecting the investments of the Portfolio consistent with the investment
objectives and policies of the Portfolio, and will conduct securities trading
for the Portfolio. All Advisers are investment advisers registered with the
SEC under the Investment Advisers Act of 1940.
The investment objectives of each Portfolio are summarized as follows:
TCW Money Market Portfolio--seeks current income, preservation of capital
and maintenance of liquidity through investment in short-term money market
securities. The Portfolio seeks to maintain a constant net asset value of
$1.00 per share although no assurances can be given that such constant net
asset value will be maintained.
TCW Managed Asset Allocation Portfolio--seeks high total return through a
managed asset allocation portfolio of equity, fixed income and money market
securities.
T. Rowe Price International Stock Portfolio--seeks long-term growth of
capital through investments primarily in common stocks of established non-U.S.
companies.
Value Equity Portfolio--seeks long-term capital appreciation through
investment in securities (primarily equity securities) of companies that are
believed by the Portfolio's Adviser to be undervalued in the marketplace in
relation to factors such as the companies' assets or earnings.
Value Small Cap Portfolio--seeks capital appreciation through investments in
a diversified portfolio consisting primarily of equity securities of companies
with market capitalizations of under $1 billion.
Dreyfus U.S. Government Securities Portfolio--seeks as high a level of total
return as is consistent with prudent investment strategies by investing
- 24 -
<PAGE>
under normal circumstances at least 65% of its assets in debt obligations and
mortgage-backed securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
T. Rowe Price Equity Income Portfolio--seeks to provide substantial dividend
income and also capital appreciation by investing primarily in dividend paying
stocks of established companies.
T. Rowe Price Growth Stock Portfolio--seeks long-term growth of capital and
to increase dividend income through investment primarily in common stocks of
well established growth companies.
WRL Growth Portfolio--seeks growth of capital. At most times, this Portfolio
will be invested primarily in equity securities which are selected solely for
their capital growth potential; investment income is not a consideration.
THERE IS NO ASSURANCE THAT ANY PORTFOLIO WILL ACHIEVE ITS STATED OBJECTIVE.
MORE DETAILED INFORMATION, INCLUDING A DESCRIPTION OF EACH PORTFOLIO'S
INVESTMENT OBJECTIVE AND POLICIES AND A DESCRIPTION OF RISKS INVOLVED IN
INVESTING IN EACH OF THE PORTFOLIOS AND OF EACH PORTFOLIO'S FEES AND EXPENSES
IS CONTAINED IN THE PROSPECTUSES FOR THE UNDERLYING FUNDS, CURRENT COPIES OF
WHICH ARE ATTACHED TO THIS PROSPECTUS. INFORMATION CONTAINED IN THE UNDERLYING
FUNDS' PROSPECTUSES SHOULD BE READ CAREFULLY BEFORE INVESTING IN A SUBACCOUNT
OF THE MUTUAL FUND ACCOUNT.
An investment in the Mutual Fund Account, or in any Portfolio, including the
TCW Money Market Portfolio and the Dreyfus U.S. Government Securities
Portfolio, is not insured or guaranteed by the U.S. government or any
government agency.
Addition, Deletion, or Substitution of Investments. PFL cannot and does not
guarantee that any of the Portfolios will always be available for Premium
Payments, allocations, or transfers. PFL retains the right, subject to any
applicable law, to make certain changes in the Mutual Fund Account and its
investments. PFL reserves the right to eliminate the shares of any Portfolio
held by a Subaccount and to substitute shares of another Portfolio of the
Underlying Funds, or of another registered open-end management investment
company for the shares of any Portfolio, if the shares of the Portfolio are no
longer available for investment or if, in PFL's judgment, investment in any
Portfolio would be inappropriate in view of the purposes of the Mutual Fund
Account. To the extent required by the 1940 Act, substitutions of shares
attributable to an Owner's interest in a Subaccount will not be made without
prior notice to the Owner and the prior approval of the SEC. Nothing contained
herein shall prevent the Mutual Fund Account from purchasing other securities
for other series or classes of variable annuity policies, or from effecting an
exchange between series or classes of variable annuity policies on the basis
of requests made by Owners.
New Subaccounts may be established when, in the sole discretion of PFL,
marketing, tax, investment or other conditions warrant. Any new
- 25 -
<PAGE>
Subaccounts may be made available to existing Owners on a basis to be
determined by PFL. Each additional Subaccount will purchase shares in a mutual
fund portfolio or other investment vehicle. PFL may also eliminate one or more
Subaccounts if, in its sole discretion, marketing, tax, investment or other
conditions warrant such change. In the event any Subaccount is eliminated, PFL
will notify Owners and request a reallocation of the amounts invested in the
eliminated Subaccount. If no such reallocation is provided by the Owner, PFL
will reinvest the amounts invested in the eliminated Subaccount in the
Subaccount that invests in the TCW Money Market Portfolio (or in a similar
portfolio of money market instruments) or in another Subaccount, if
appropriate.
In the event of any such substitution or change, PFL may, by appropriate
endorsement, make such changes in the Policies as may be necessary or
appropriate to reflect such substitution or change. Furthermore, if deemed to
be in the best interests of persons having voting rights under the Policies,
the Mutual Fund Account may be (i) operated as a management company under the
1940 Act or any other form permitted by law, (ii) deregistered under the 1940
Act in the event such registration is no longer required or (iii) combined
with one or more other separate accounts. To the extent permitted by
applicable law, PFL also may transfer the assets of the Mutual Fund Account
associated with the Policies to another account or accounts.
THE FIXED ACCOUNT
This Prospectus is generally intended to serve as a disclosure document only
for the Policy and the Mutual Fund Account. In addition, all Policies issued
before May 1, 1996, and Policies issued on or after that date but issued under
a form other than AV254 101 87 196 have different Fixed Account features than
those described in this Prospectus. For complete details regarding the Fixed
Account, see the Policy itself.
Premium Payments allocated and amounts transferred to the Fixed Account
become part of the general account of PFL, which supports insurance and
annuity obligations. Interests in the general account have not been registered
under the Securities Act of 1933 (the "1933 Act"), nor is the general account
registered as an investment company under the 1940 Act. Accordingly, neither
the general account nor any interests therein are generally subject to the
provisions of the 1933 or 1940 Acts and PFL has been advised that the staff of
the SEC has not reviewed the disclosures in this Prospectus which relate to
the fixed portion.
The Fixed Account is made up of all the general assets of PFL, other than
those in the Mutual Fund Account or in any other segregated asset account. The
Policy Owner may allocate Premium Payments to the Fixed Account at the time of
Premium Payment or by subsequent transfers from the Mutual Fund Account.
Instead of the Policy Owner bearing the investment risk, as is the case for
Annuity Purchase Value in the Mutual Fund Account, PFL bears the full
investment risk for all Annuity Purchase
- 26 -
<PAGE>
Value in the Fixed Account. PFL has sole discretion to invest the assets of
its general account, including the Fixed Account, subject to applicable law.
Premium payments applied to and any amounts transferred to the Fixed Account
will reflect a fixed interest rate. The interest rates PFL sets will be
credited for increments of at least one year measured from each premium
payment or transfer date. These rates will never be less than an effective
annual interest rate of 3%.
Guaranteed Periods. PFL may offer optional guaranteed interest rate periods
("Guaranteed Period Options") into which Premium Payments may be paid or
amounts transferred. For example, PFL may offer Guaranteed Period Options
("GPO's") for periods of 1, 3, 5, or 7 years from time to time. The current
interest rate PFL sets for funds entering each GPO will be guaranteed until
the end of that GPO's Guaranteed Period. At the end of the Guaranteed Period,
the Premium Payment or amount transferred into the GPO less any withdrawals or
transfers from that GPO, including the effect of any Excess Interest
Adjustment or Contingent Deferred Sales Charge due to withdrawals or transfers
prior to the end of the Guaranteed Period, plus accrued interest, will be
rolled into a new GPO(s).
The Policy Owner may choose the GPO(s) in which the Owner wants the funds
placed by giving PFL notice within 30 days before the end of the expiring
GPO's Guaranteed Period. In the absence of such election, the new GPO's
Guaranteed Period will be the same as the expiring GPO's period unless that
GPO is no longer offered, in which case, the next shorter GPO offered will be
used. PFL reserves the right, for new Premium Payments, transfers, or
rollovers, to offer or not to offer any GPO except that PFL will always offer
at least a one-year GPO.
Withdrawals and transfers from a Guaranteed Period Option prior to the end
of the Guaranteed Period are subject to an Excess Interest Adjustment as
described below at page 35.
PFL guarantees that, at any time prior to the Annuity Commencement Date, the
amount in the Fixed Account allocable to a particular Policy will be not less
than the amount of the Premium Payments allocated or transferred to the Fixed
Account, plus interest at the rate of 3% per year, plus any excess interest
credited to amounts in the Fixed Account, less any applicable premium or other
taxes allocable to the Fixed Account, and less any amounts deducted from the
Fixed Account in connection with partial surrenders or transfers to the Mutual
Fund Account (including any Contingent Deferred Sales Charges).
The Current Interest Rates will be determined by PFL in its sole discretion.
For purposes of crediting interest, the oldest Premium Payment or transfer
into a Guaranteed Period Option within the Fixed Account, plus interest
allocable to that Premium Payment or transfer, is considered to be withdrawn
or transferred out first; the next oldest Premium Payment plus
- 27 -
<PAGE>
interest is considered to be transferred out next, and so on (this is a
"first-in, first-out" procedure). The Owner bears the risk that PFL will not
credit interest in excess of 3% per year. (4% per year for Owners with a
policy form number other than AV254 101 87 196).
Dollar Cost Averaging Fixed Account Option. PFL may offer a Dollar Cost
Averaging Fixed Account Option separate from the GPO(s). This option will have
a one-year interest rate guarantee and will only be available under a Dollar
Cost Averaging (DCA) program (see "Dollar Cost Averaging" p. 30.)
Prior to the Annuity Commencement Date, no transfers, except through DCA,
will be allowed from the DCA Fixed Account. DCA transfers must begin within 30
days after the Premium Payment or transfer to the DCA Fixed Account. Transfers
must be scheduled for at least six but not more than 24 months, or for at
least four, but not more than eight quarters. No changes to the amount
transferred will be allowed, but changes can be made to the Subaccounts to
which these transfers are allocated. DCA transfers from the DCA Fixed Account
will not be subject to an Excess Interest Adjustment.
TRANSFERS
An Owner can transfer Annuity Purchase Value from one Investment Option to
another within certain limits.
Subject to the limitations and restrictions described below, transfers from
an Investment Option may be made, up to thirty days prior to the Annuity
Commencement Date, by sending Written Notice, signed by the Policy Owner, to
the Administrative and Service Office. The minimum amount which may be
transferred is the lesser of $500 or the entire Subaccount or GPO Value. If
the Subaccount or GPO Value remaining after a transfer is less than $500, PFL
reserves the right, at its discretion, to include that amount as part of the
transfer.
If the Excess Interest Adjustment (at the time of a transfer request) from
any GPO is a negative adjustment, then the maximum amount that can be
transferred is 25% of that GPO's Annuity Purchase Value, less amounts
previously transferred out of that GPO during the current Policy Year. No
maximum will apply to amounts transferred from any GPO if the Excess Interest
Adjustment is a positive adjustment at the time of transfer.
Transfers currently may be made without charge as often as the Owner wishes,
subject to the minimum amount specified above. PFL reserves the right to limit
these transfers to no more than 12 per Policy Year in the future or to charge
up to $10 per transfer in excess of 12 per Policy Year.
Transfers out of the Dollar Cost Averaging Fixed Account, except through
Dollar Cost Averaging, are not allowed.
For Policies issued under form number AV254 101 87 196, transfers out of a
Guaranteed Period Option prior to the end of the Guaranteed Period are
- 28 -
<PAGE>
subject to an Excess Interest Adjustment, which could increase or decrease the
amount available to transfer. Except for Policies issued with form number
AV254 101 87 196, transfers from the Three Year Option Fixed Account are
subject to a yearly limit equal to 25% of the current Three Year Option Fixed
Account Value or an amount equal to the amount the Owner transferred out of
the Three Year Option Fixed Account during the prior year, whichever is
greater. After the Annuity Commencement Date, transfers out of the Fixed
Account are not permitted. See "Annuity Payment Options," p. 38.
Transfers may be made by telephone, subject to the provisions described
below under "Telephone Transactions."
REINSTATEMENTS
Requests are sometimes received by PFL to reinstate funds which had been
transferred to another company via a Section 1035 exchange or trustee to
trustee transfer. In this situation PFL will require the Owner to replace the
same total amount of money in the applicable Subaccounts and/or Fixed Accounts
as was taken from them to effect the Exchange. The total dollar amount of
funds reapplied to the Separate Account will be used to purchase a number of
units available for each Subaccount based on the unit prices at the date of
Reinstatement (within two days of the date the funds are received by PFL). It
should be noted that the number of units available on the Reinstatement date
may be more or less than the number surrendered for the Exchange. Amounts
reapplied to the Fixed Account will receive the interest rate they would
otherwise have received, had they not been withdrawn. However, an adjustment
will be made to the amount reapplied to compensate PFL for the additional
interest credited during the period of time between the withdrawal and the
reapplication of the funds. Owners should consult a qualified tax adviser
concerning the tax consequences of any Section 1035 exchanges or
reinstatements.
TELEPHONE TRANSACTIONS
Owners (or their designated account executive) may make transfers and/or
change the allocation of subsequent premium payments by telephone if the
"Telephone Transfer/Reallocation Authorization" box in the application has
been checked or telephone transfers have been subsequently authorized in
writing. PFL and/or the Administrative and Service Office will not be liable
for following instructions communicated by telephone that it reasonably
believes to be genuine. However, PFL and/or the Administrative and Service
Office will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. If PFL and/or the Administrative and
Service Office fails to do so, it may be liable for any losses due to
unauthorized or fraudulent instructions. All telephone requests will be
recorded on voice recorder equipment for the protection of the Owner. The
Owner, when making telephone requests, will be required to provide their
social security number and/or other information for identification purposes.
- 29 -
<PAGE>
Telephone requests must be received at the Administrative and Service Office
no later than 3:00 p.m. Central time in order to assure same day pricing of
the transaction.
The telephone transaction privilege may be discontinued at any time as to
some or all Owners and PFL may require written confirmation of a transaction
request at its discretion.
DOLLAR COST AVERAGING (DCA)
Under the Dollar Cost Averaging program, prior to the Annuity Commencement
Date, the Policy Owner can instruct PFL to automatically transfer a dollar
amount specified by the Policy Owner from the DCA Fixed Account Option, the
TCW Money Market Subaccount or the Dreyfus U.S. Government Securities
Subaccount to any other Subaccount or Subaccounts of the Mutual Fund Account.
PFL may, at its discretion offer the Policy Owner the option to transfer
interest earned in any of the Guaranteed Period Options to any Subaccount(s)
of the Mutual Fund Account. No Excess Interest Adjustment will apply to
transfers of interest. The automatic transfers can occur monthly or quarterly
and will occur on the 28th day of the month. If the DCA request is received
prior to the 28th day of any month, the first transfer will occur on the 28th
day of that month. If the DCA request is received on or after the 28th day of
any month, the first transfer will occur on the 28th day of the following
month. The amount transferred each time must be at least $500. A minimum of
six monthly or four quarterly transfers are required and a maximum of 24
monthly or eight quarterly transfers are allowed from the DCA Fixed Account.
Dollar Cost Averaging results in the purchase of more units when the Unit
Value is low, and fewer units when the Unit Value is high. However, there is
no guarantee that the Dollar Cost Averaging program will result in higher
Annuity Purchase Values or will otherwise be successful.
The Policy Owner may request Dollar Cost Averaging when purchasing the
Policy or at a later date. The program will terminate when the amount in the
DCA Fixed Account, the TCW Money Market Subaccount or the Dreyfus U.S.
Government Securities Subaccount is insufficient for the next transfer, at
which time the entire remaining balance is transferred.
Except for DCA transfers from the DCA Fixed Account Option the Owner may
increase or decrease the amount of the transfers by sending PFL a new Dollar
Cost Averaging form. The Owner may discontinue the program at any time by
sending a Written Notice to the Administrative and Service Office. The minimum
number of transfers (6 monthly or 4 quarterly) requirement must be satisfied
each time the DCA program is restarted following termination of the program
for any reason. There is no charge for this program.
ASSET REBALANCING
Prior to the Annuity Commencement Date the Policy Owner may instruct PFL to
automatically transfer amounts among the Subaccounts of
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<PAGE>
the Mutual Fund Account on a regular basis to maintain a desired allocation of
the Annuity Purchase Value among the various Subaccounts offered. Rebalancing
will occur on a monthly, quarterly, semi-annual, or annual basis, beginning on
a date selected by the Policy Owner. The Policy Owner must select the
percentage of the Annuity Purchase Value desired in each of the various
Subaccounts offered (totaling 100%). Any amounts in the Fixed Account are
ignored for purposes of asset rebalancing. Rebalancing may be started,
stopped, or changed at any time, except that rebalancing will not be available
when:
(1) Dollar Cost Averaging is in effect; or
(2) any other transfer is requested.
THE POLICY
The Endeavor Variable Annuity Policy is a Flexible Premium Variable Annuity
Policy. The rights and benefits under the Policy are summarized below;
however, the description of the Policy contained in this Prospectus is
qualified in its entirety by reference to the Policy itself, a copy of which
is available upon request from PFL. The Policy may be purchased on a non-tax
qualified basis ("Nonqualified Policy"). The Policy may also be purchased and
used in connection with retirement plans or individual retirement accounts
that qualify for favorable federal income tax treatment ("Qualified Policy").
POLICY APPLICATION AND ISSUANCE OF POLICIES
Before it will issue a Policy, PFL must receive a completed Policy
application or transmittal form and a minimum initial Premium Payment of
$5,000 for a Nonqualified Policy, $50 for a Policy purchased for use in
connection with a Tax Deferred 403(b) Annuity, or $1,000 for any other
Qualified Policy. A Policy ordinarily will be issued only in respect of
Annuitants Age 0 through 80. Acceptance or declination of an application shall
be based on PFL's underwriting standards, and PFL reserves the right to reject
any application or Premium Payment based on those underwriting standards.
If the application or transmittal form can be accepted in the form received,
the initial Premium Payment will be credited to the Annuity Purchase Value
within two Business Days after the later of receipt of the information needed
to issue the Policy or receipt of the initial Premium Payment. If the initial
Premium Payment cannot be credited because the application or other issuing
requirements are incomplete, the applicant will be contacted within five
Business Days and given an explanation for the delay and the initial Premium
Payment will be returned at that time unless the applicant consents to PFL's
retaining the initial Premium Payment and crediting it as soon as the
necessary requirements are fulfilled.
The date on which the initial Premium Payment is credited to the Annuity
Purchase Value is the Policy Date. The Policy Date is the date used to
determine Policy Years and Policy Anniversaries.
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PREMIUM PAYMENTS
All initial Premium Payment checks or drafts should be made payable to PFL
Life Insurance Company and sent to the Administrative and Service Office.
Subsequent Additional Premium Payments should also be sent to the
Administrative and Service Office. The Death Benefit will not take effect
until the check or draft for the Premium Payment is honored.
Initial Premium Payment. The minimum initial Premium Payment that PFL
currently will accept under a Policy is $5,000 under a Nonqualified Policy,
$50 under a Policy purchased for use in connection with a Tax Deferred 403(b)
Annuity, and $1,000 under any other Qualified Policy. PFL reserves the right
to increase or decrease this amount for a class of Policies issued after some
future date. The initial Premium Payment is the only Premium Payment required
to be paid under a Policy.
Subsequent Additional Premium Payments. While the Annuitant is living and
prior to the Annuity Commencement Date, the Owner may make Subsequent
Additional Premium Payments at any time, and in any frequency. The minimum
Subsequent Additional Premium Payment under both a Nonqualified Policy and a
Qualified Policy is $50 including payments through automatic deduction.
Subsequent Additional Premium Payments will be credited to the Policy and
added to the Annuity Purchase Value as of the Business Day when the premium
and required information are received.
Maximum Total Premium Payments. The maximum total Premium Payments allowed
without prior approval of PFL is $1,000,000.
Allocation of Premium Payments. An Owner must allocate Premium Payments to
one or more of the Investment Options. The Owner must specify the initial
allocation in the Policy application or transmittal form. This allocation will
be used for Subsequent Additional Premium Payments unless the Owner requests a
change of allocation. All allocations must be made in whole percentages and
must total 100%. If the Owner fails to specify how Premium Payments are to be
allocated, the Premium Payment(s) cannot be accepted.
The Owner may change the allocation instructions for future Subsequent
Additional Premium Payments by sending Written Notice, signed by the Owner, to
PFL's Administrative and Service Office, or by telephone (subject to the
provisions described under "Telephone Transactions," p. 29.) The allocation
change will apply to Premium Payments received after the date the Written
Notice or telephone request is received.
Payment Not Honored by Bank. Any payment due under the Policy which is
derived, all or in part, from any amount paid to PFL by check or draft may be
postponed until such time as PFL determines that such instrument has been
honored.
ANNUITY PURCHASE VALUE
On the Policy Date, the Annuity Purchase Value equals the initial Premium
Payment. Thereafter, the Annuity Purchase Value equals the sum
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of the values in the Mutual Fund Account and the Fixed Account. The Annuity
Purchase Value will increase by (1) any Subsequent Additional Premium Payments
received by PFL; (2) any increases in the Annuity Purchase Value due to
investment results of the selected Subaccount(s); (3) any positive Excess
Interest Adjustments on transfers, and (4) interest credited in the Fixed
Account. The Annuity Purchase Value will decrease by (1) any surrenders,
including applicable Excess Interest Adjustments and/or Contingent Deferred
Sales Charges; (2) any decreases in the Annuity Purchase Value due to
investment results of the selected Subaccounts; (3) the charges imposed by
PFL; and (4) any negative Excess Interest Adjustments on transfers.
The Annuity Purchase Value is expected to change from Valuation Period to
Valuation Period, reflecting the investment experience of the selected
Subaccount(s), as well as the deductions for charges. A Valuation Period is
the period between successive Business Days. It begins at the close of
business on each Business Day and ends at the close of business on the next
succeeding Business Day. A Business Day is each day that both the New York
Stock Exchange and the Administrative and Service Office are open for
business. Holidays are generally not Business Days.
The Mutual Fund Account Value. When a Premium Payment is allocated or an
amount is transferred to a Subaccount of the Mutual Fund Account, it is
credited to the Annuity Purchase Value in the form of Accumulation Units. Each
Subaccount of the Mutual Fund Account has a distinct Accumulation Unit value
(the "Unit Value"). The number of units credited is determined by dividing the
Premium Payment or amount transferred by the Unit Value of the Subaccount as
of the end of the Valuation Period during which the allocation is made. When
amounts are transferred out of, or surrendered or withdrawn from a Subaccount,
units are canceled or redeemed in a similar manner.
For each Subaccount, the Unit Value for a given Business Day is based on the
net asset value of a share of the corresponding Portfolio of the Underlying
Funds. Therefore, the Unit Values will fluctuate from day to day based on the
investment experience of the corresponding Portfolio. The determination of
Subaccount Unit Values is described in detail in the Statement of Additional
Information.
ADJUSTED ANNUITY PURCHASE VALUE (AAPV)
The Adjusted Annuity Purchase Value is the Annuity Purchase Value increased
or decreased by any Excess Interest Adjustment.
The AAPV will be used on the Annuity Commencement Date to provide the amount
of annuity payments under a Policy.
NON-PARTICIPATING POLICY
The Policy does not participate or share in the profits or surplus earnings
of PFL. No dividends are payable on the Policy.
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DISTRIBUTIONS UNDER THE POLICY
SURRENDERS
Prior to the Annuity Commencement Date, the Owner may surrender all or a
portion of the Cash Value in exchange for a cash withdrawal payment from PFL.
The Cash Value is the Adjusted Annuity Purchase Value less any applicable
Contingent Deferred Sales Charge and any applicable premium taxes. (See
"Annuity Payment Options," p. 38.) The Policy cannot be surrendered after the
Annuity Commencement Date. (See "Annuity Payments," p. 37.)
When requesting a partial withdrawal ($500 minimum), the Owner must tell PFL
how the withdrawal is to be allocated among various Guaranteed Period Options
of the Fixed Account and/or the Subaccount(s) of the Mutual Fund Account. If
the Owner's request for a partial withdrawal from a Guaranteed Period Options
of the Fixed Account is greater than the Cash Value of that Guaranteed Period,
PFL will pay the Owner the amount of the Cash Value of that Guaranteed Period.
If no allocation instructions are given, the withdrawal will be deducted from
each Investment Option in the same proportion that the Policy Owner's interest
in each Investment Option bears to the Policy's total Annuity Purchase Value.
Surrenders from the Fixed Account may be delayed for up to six months.
Beginning in the second Policy Year, an Owner may surrender up to 10% of the
Annuity Purchase Value without an Excess Interest Adjustment (EIA) and without
a Contingent Deferred Sales Charge if no withdrawal has been made in the
current Policy Year ("surrender charge free/adjustment free withdrawals").
Amounts withdrawn from the Policy in excess of this free withdrawal amount or
withdrawn in the same Policy Year as a previous withdrawal (and all surrenders
in the first Policy Year) are subject to the EIA and to the Contingent
Deferred Sales Charge. Neither a Contingent Deferred Sales Charge nor an EIA
will be assessed if the withdrawal is necessary to meet the minimum
distribution requirements for that Policy specified by the IRS for tax
qualified plans.
Withdrawals free of surrender charges and adjustments will reduce the
Annuity Purchase Value by the amount withdrawn. Amounts requested in excess of
the portion that is free of surrender charges and adjustments are Excess
Partial Withdrawals. Excess Partial Withdrawals will reduce the Annuity
Purchase Value by an amount equal to (X - Y + Z) where:
X = Excess Partial Withdrawal
Y = Excess Interest Adjustment = (X) X (G - C) X (M/12) where G, C, and M
are defined in the Excess Interest Adjustment Section.
Z = Contingent Deferred Sales Charge on X and Y.
For a discussion of the Contingent Deferred Sales Charge, see "Contingent
Deferred Sales Charge," p. 45. For a discussion of the Excess Interest
Adjustment, see "Excess Interest Adjustment", p. 35.
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<PAGE>
Since the Owner assumes the investment risk with respect to Premium Payments
allocated to the Mutual Fund Account, and because withdrawals are subject to
an Excess Interest Adjustment and to a Contingent Deferred Sales Charge, and
possibly premium taxes, the total amount paid upon total surrender of the Cash
Value (taking any prior surrenders into account) may be more or less than the
total Premium Payments made. Following a surrender of the total Cash Value, or
at any time the Annuity Purchase Value is zero, all rights of the Owner and
Annuitant will terminate.
In addition to the Excess Interest Adjustment and Contingent Deferred Sales
Charge and any applicable premium taxes, surrenders may be subject to income
taxes and, if prior to age 59 1/2, a ten percent penalty tax. (See "Certain
Federal Income Tax Consequences," p. 49.)
NURSING CARE AND TERMINAL CONDITION WAIVER
For Policies issued with form number AV254 101 87 196 or with Endorsement AE
890 195 or a similar endorsement (depending on the state of issuance) the EIA
Contingent Deferred Sales Charge and partial withdrawals adjustment as
described in the Guaranteed Minimum Death Benefit, are not imposed on partial
or complete surrenders if the Owner: 1)has been confined in a hospital or
nursing facility for 30 consecutive days or 2) has been diagnosed as having a
terminal condition as defined in the endorsement. (This benefit is not
available in all states--see the Policy endorsement for details.) In addition,
neither a Contingent Deferred Sales Charge nor an EIA will be assessed if the
policy withdrawal is necessary to meet the minimum distribution requirements
for that Policy specified by the IRS for tax qualified plans.
EXCESS INTEREST ADJUSTMENT (EIA)
Only Policies issued on or after May 1, 1996 and under form number AV254 101
87 196 are subject to the EIA, if applicable.
Full surrenders, partial withdrawals and transfers from the Fixed Account
Guaranteed Periods will be subject to an Excess Interest Adjustment except as
provided for under "Surrenders" above or "Systematic Payout Plan," below.
Excess Interest Adjustment = S X (G-C) X (M/12)
where: S is the gross amount (i.e. before premium taxes, if any) being
surrendered or withdrawn that is subject to the Excess Interest
Adjustment.
G is the guaranteed interest rate applicable to S.
C is the current guaranteed interest rate then being offered on new
Policies for the next longer option period than "M". If this Policy
form or such an option period is no longer offered, "C" will be the
U.S. Treasury rate for the next longer maturity (in whole years) than
"M" on the 25th day of the previous calendar month, plus up to 2%.
M is the number of months remaining in the option period for S,
rounded up to the next higher whole number of months.
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Generally, if G is lower than C, the application of the EIA (a negative EIA
in this case) will result in a lower payment upon surrender. Conversely, if G
is higher than C, the application of the EIA (a positive EIA in this case)
will result in a higher payment upon surrender.
Upon transfer or withdrawal from any Guaranteed Period Option, or upon full
surrender of the Policy, the EIA for each Guaranteed Period Option will not
reduce the Adjusted Annuity Purchase Value for that Guaranteed Period Option
below the amount paid into, less any prior withdrawals and transfers from that
Guaranteed Period Option, plus interest at the 3% guaranteed effective annual
interest rate.
The formula for calculating the EIA and examples of the application of the
EIA are set forth in Appendix A to this Prospectus.
SYSTEMATIC PAYOUT OPTION
Under the Systematic Payout Option, Policy Owners can instruct PFL to make
automatic payments to them monthly, quarterly, semi-annually or annually from
a specified Subaccount. Monthly and quarterly payments can only be sent by
electronic funds transfer directly to a checking or savings account. The
minimum payment is $50. The maximum payment is 10% of the Annuity Purchase
Value at the time the Systematic Payout is elected divided by the number of
payments made per year (e.g. 12 for monthly). If this amount is below the
minimum distribution requirements for that policy specified by the IRS for tax
qualified plans, the maximum payment will be increased to this minimum
required distribution amount. The "Request for Systematic Payout" form must
specify a date for the first payment, which must be at least 30 days but not
more than one year after the form is submitted (i.e., Systematic Payouts will
start at the end of the payment mode selected, but not earlier than 30 days
from the date of request).
The Contingent Deferred Sales Charge and EIA will be waived for Policy
Owners under age 59 1/2 of Qualified Policies if they take Systematic Payouts
using one of the payout methods described in I.R.S. Notice 89-25, Q&A-12 (the
Life Expectancy Recalculation Option, Amortization, or Annuity Factor) which
generally require payments for life or life expectancy. These payments must be
continued until the later of age 59 1/2 or five years from their commencement.
No additional withdrawals may be taken during this time. For Qualified
Policies, Policy Owners age 59 1/2 or older, the Contingent Deferred Sales
Charge and EIA will be waived if payments are made using the Life Expectancy
Recalculation Option.
In addition, for either Qualified or Nonqualified Policies, the Contingent
Deferred Sales Charge and EIA will not be imposed on Systematic Payouts.
Qualified Policies are subject to complex rules with respect to restrictions
on and taxation of distributions, including the applicability of penalty
taxes. In addition, the tax treatment of systematic payouts from Nonqualified
Policies has had an unfavorable ruling regarding the ability to avoid the 10%
penalty tax. Therefore, the Policy Owner should consult a
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qualified tax adviser before requesting a Systematic Payout. In certain
circumstances withdrawn amounts may be included in the Policy Owner's gross
income. (See "Certain Federal Income Tax Consequences," p. 49.)
ANNUITY PAYMENTS
Annuity Commencement Date. Unless the Annuity Commencement Date is changed,
Annuity Payments under a Policy will begin on the Annuity Commencement Date
which is selected by the Policy Owner at the time the Policy is applied for.
The Annuity Commencement Date may be changed from time to time by the Policy
Owner by Written Notice to PFL, provided that notice of each change is
received by PFL at its Administrative and Service Office at least thirty (30)
days prior to the then current Annuity Commencement Date. Except as otherwise
permitted by PFL, a new Annuity Commencement Date must be a date which is: (1)
at least thirty (30) days after the date notice of the change is received by
PFL; and (2) not later than the last day of the policy month starting after
the Annuitant attains age 85. In no event will an Annuity Commencement Date be
permitted to be later than the last day of the month following the month in
which the Annuitant attains age 95. The Annuity Commencement Date may also be
changed by the Beneficiary's election of the Annuity Option after the
Annuitant's death.
Election of Payment Option. During the lifetime of the Annuitant and prior
to the Annuity Commencement Date, the Policy Owner may choose an Annuity
Payment Option or change the election, but Written Notice of any election or
change of election must be received by PFL at its Administrative and Service
Office at least thirty (30) days prior to the Annuity Commencement Date. If no
election is made prior to the Annuity Commencement Date, Annuity Payments will
be made under (i) Option 3, life income with level payments for 10 years
certain, using the existing Adjusted Annuity Purchase Value of the Fixed
Account, or (ii) under Option 3-V, life income with variable payments for 10
years certain using the existing Adjusted Annuity Purchase Value of the Mutual
Fund Account, or (iii) in a combination of (i) and (ii). If the Adjusted
Annuity Purchase Value on the Annuity Commencement Date is less than $2000,
PFL reserves the right to pay it in one lump sum in lieu of applying it under
an Annuity Payment Option.
Prior to the Annuity Commencement Date, the Beneficiary may elect to receive
the Death Benefit in a lump sum or under one of the Payment Options, to the
extent allowed by law and subject to the terms of any settlement agreement.
(See "Death Benefit," p. 41.) Annuity Payments will be made on either a fixed
basis or a variable basis as selected by the Policy Owner (or the Beneficiary,
after the Annuitant's death).
The person who elects a Payment Option can also name one or more successor
payees to receive any unpaid amount PFL has at the death of a payee. Naming
these payees cancels any prior choice of a successor payee.
A payee who did not elect the Payment Option does not have the right to
advance or assign payments, take the payments in one sum, or make any
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other change. However, the payee may be given the right to do one or more of
these things if the person who elects the option tells PFL in writing and PFL
agrees.
Unless the Policy Owner specifies otherwise, the payee shall be the
Annuitant, or, after the Annuitant's death, the Beneficiary. PFL may require
written proof of the age of any person who has an annuity purchased under
Option 3, 3-V, 5 or 5-V.
Premium Tax. PFL may be required by state law to pay premium tax on the
amount applied to a payment option or upon withdrawal. If so, PFL will deduct
the premium tax before applying or paying the proceeds.
Supplementary Policy. Once proceeds become payable and a choice has been
made, PFL will issue a Supplementary Policy in settlement of the option
elected under the Policy setting forth the terms of the option elected. The
Supplementary Policy will name the payees and will describe the payment
schedule.
ANNUITY PAYMENT OPTIONS
The Policy provides five Payment Options which are described below. Three of
these are offered as either "Fixed Payment Options" or "Variable Payment
Options," and two are only available as Fixed Payment Options. The Policy
Owner may elect a Fixed Payment Option, a Variable Payment Option, or a
combination of both. If the Policy Owner elects a combination, he must specify
what part of the Policy proceeds are to be applied to the Fixed and Variable
Options (and he must also specify which Subaccounts for the Variable Options).
NOTE CAREFULLY: Under Payment Options 3(1) and 5 (including 3-V(1) and 5-V),
it would be possible for only one Annuity Payment to be made if the
Annuitant(s) were to die before the due date of the second annuity payment;
only two Annuity Payments if the Annuitant(s) were to die before the due date
of the third annuity payment; and so forth.
On the Annuity Commencement Date, the Policy's Adjusted Annuity Purchase
Value will be applied to provide for Annuity Payments under the selected
Annuity Option as specified. The Adjusted Annuity Purchase Value is the
Annuity Purchase Value for the Valuation Period which ends immediately
preceding the Annuity Commencement Date, including the effect of any
applicable Excess Interest Adjustment, and reduced by any applicable premium
or similar taxes.
The effect of choosing a Fixed Annuity Option is that the amount of each
payment will be set on the Annuity Commencement Date and will not change. If a
Fixed Annuity Option is selected, the Adjusted Annuity Purchase Value will be
transferred to the general account of PFL, and the Annuity Payments will be
fixed in amount by the fixed annuity provisions selected and the age and sex
(if consideration of sex is allowed) of the Annuitant. For further
information, contact PFL at its Administrative and Service Office.
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Guaranteed Values. There are five Fixed Annuity Options. Options 1, 2 and 4
are based on a guaranteed interest rate of 3%. Options 3 and 5 are based on a
guaranteed interest rate of 3% using the "1983 Table a" (male, female, and
unisex if required by law) mortality table improved to the year 2000 with
projection scale G. ("The 1983 Table a" mortality rates are adjusted based on
improvements in mortality since 1983 to more appropriately reflect increased
longevity. This is accomplished using a set of improvement factors referred to
as projection scale G.)
Option 1--Interest Payments. The policy proceeds may be left with PFL for
any term agreed to. PFL will pay the interest in equal payments or it may be
left to accumulate. Withdrawal rights will be agreed upon by the Owner and PFL
when the option is elected.
Option 2--Income for a Specified Period. Level payments of the proceeds with
interest are made for the fixed period elected, at which time the funds are
exhausted.
Option 3--Life Income. An election may be made between:
1. "No Period Certain"--Level payments will be made during the
lifetime of the Annuitant.
2. "10 Years Certain"--Level Payments will be made for the longer of
the Annuitant's lifetime or ten years.
3. "Guaranteed Return of Policy Proceeds"--Level payments will be
made for the longer of the Annuitant's lifetime or the number of
payments which, when added together, equals the proceeds applied
to the income option.
Option 4--Income of a Specified Amount. Payments are made for any specified
amount until the proceeds with interest are exhausted.
Option 5--Joint and Survivor Annuity. Payments are made during the joint
lifetime of the payee and a joint payee of the Owner's selection. Payments
will be made as long as either person is living.
Other options may be arranged by agreement with PFL. Certain options may not
be available in some states.
Current immediate annuity rates for the same class of annuities will be used
if higher than the guaranteed amount (guaranteed amounts are based upon the
tables contained in the Policy). Current amounts may be obtained from PFL.
Variable Payment Options. The dollar amount of the first Variable Annuity
Payment will be determined in accordance with the annuity payment rates set
forth in the applicable table contained in the Policy. The tables are based on
a 5% effective annual Assumed Investment Return and the "1983 Table a" (male,
female, and unisex if required by law) mortality table improved to the year
2000 with projection Scale G. ("The 1983 Table a" mortality rates are adjusted
based on improvements in mortality since
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1983 to more appropriately reflect increased longevity. This is accomplished
using a set of improvement factors referred to as projection scale G.) The
dollar amount of subsequent Variable Annuity Payments will vary based on the
investment performance of the Subaccount of the Mutual Fund Account selected
by the Annuitant or Beneficiary. If the actual investment performance exactly
matched the Assumed Investment Return of 5% at all times, the amount of each
Variable Annuity Payment would remain equal. If actual investment performance
exceeds the Assumed Investment Return, the amount of the payments would
increase. Conversely, if actual investment performance is worse than the
Assumed Investment Return, the amount of the payments would decrease.
Determination of the First Variable Payment. The amount of the first
variable payment depends upon the sex (if consideration of sex is allowed) and
adjusted age of the Annuitant. The adjusted age is the Annuitant's actual age
nearest birthday, at the Annuity Commencement Date, adjusted as follows:
<TABLE>
<CAPTION>
ANNUITY
COMMENCEMENT
DATE ADJUSTED AGE
------------ ------------
<S> <C>
Before 2001 Actual Age
2001-2010 Actual Age minus 1
2011-2020 Actual Age minus 2
2021-2030 Actual Age minus 3
2031-2040 Actual Age minus 4
After 2040 As determined by PFL
</TABLE>
This adjustment assumes an increase in life expectancy, and therefore it
results in lower payments than without such an adjustment.
The following Variable Payment Options generally are available:
Option 3-V--Life Income. An election may be made between:
1."No Period Certain"--Payments will be made during the lifetime of the
Annuitant.
2."10 Years Certain"--Payments will be made for the longer of the
Annuitant's lifetime or ten years.
Option 5-V--Joint and Survivor Annuity. Payments are made as long as either
the Annuitant or the joint Annuitant is living.
Certain options may not be available in some states.
Determination of Subsequent Variable Payments. All Variable Annuity Payments
other than the first are calculated using "Annuity Units" which are credited
to the Policy. The number of Annuity Units to be credited in respect of a
particular Subaccount is determined by dividing that portion of the first
Variable Annuity Payment attributable to that Subaccount by the Annuity Unit
Value of that Subaccount for the Annuity Commencement Date. The number of
Annuity Units of each particular Subaccount credited to the Policy then
remains fixed. The dollar value of variable Annuity Units in the chosen
Subaccount will increase or decrease reflecting the investment
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experience of the chosen Subaccount. The dollar amount of each Variable
Annuity Payment after the first may increase, decrease or remain constant, and
is equal to the sum of the amounts determined by multiplying the number of
Annuity Units of each particular Subaccount credited to the Policy by the
Annuity Unit Value for the particular Subaccount on the date the payment is
made.
Transfers. A Policy Owner may transfer the value of the Annuity Units from
one Subaccount to another within the Mutual Fund Account or to the Fixed
Account. However, after the Annuity Commencement Date no transfers may be made
from the Fixed Account to the Mutual Fund Account. The minimum amount which
may be transferred is the lesser of $10 of monthly income or the entire
monthly income of the variable Annuity Units in the Subaccount from which the
transfer is being made. The remaining Annuity Units in the Subaccount must
provide at least $10 of monthly income. If, after a transfer, the monthly
income of the remaining Annuity Units in a Subaccount would be less than $10,
PFL reserves the right to include those Annuity Units as part of the transfer.
PFL reserves the right to limit transfers between Subaccounts or to the Fixed
Account to once per Policy Year.
* * *
A portion or the entire amount of the Annuity Payments may be taxable as
ordinary income. If, at the time the Annuity Payments begin, the Policy Owner
has not provided PFL with a written election not to have federal income taxes
withheld, PFL must by law withhold such taxes from the taxable portion of such
annuity payments and remit that amount to the federal government. Withholding
is mandatory for certain qualified Policies. (See "Certain Federal Income Tax
Consequences," p. 49.)
Adjustment of Annuity Payments. Payments will be made at 1, 3, 6, or 12
month intervals. If the individual payments provided for would be or become
less than $50, PFL may change, at its discretion, the frequency of payments to
such intervals as will result in payments of at least $50. If the Adjusted
Annuity Purchase Value on the Annuity Commencement Date is less than $2,000,
PFL may pay such value in one sum in lieu of the payments otherwise provided
for.
DEATH BENEFIT
Death of Annuitant Prior to Annuity Commencement Date. A Death Benefit will
be paid to the Beneficiary if the Annuitant is also the Owner and the Owner
dies prior to the Annuity Commencement Date. The amount of the Death Benefit
will be the greater of a) the Annuity Purchase Value (or the Cash Value, if
greater) on the later of the date proof of the Owner's death and the date an
election of the method of settlement are received by PFL's Administrative and
Service Office, or b) the Guaranteed Minimum Death Benefit ("GMDB") described
below.
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For Policies issued under form number AV254 101 87 196 or with Endorsement
AE 871 295, the Owner may choose which GMDB they desire, either 1) a 5%
Compound Death Benefit (except if either the Annuitant or the Owner is age 75
or older) or 2) an Annual Step-Up Death Benefit.
The 5% Compound Death Benefit is the total Premium Payments less any
Adjusted Partial Withdrawals plus interest at an effective annual rate of 5%
from the payment or withdrawal date up to the Annuitant's date of death.
The Annual Step-Up Guaranteed Minimum Death Benefit is the highest Annuity
Purchase Value on any Policy Anniversary prior to the earlier of the date of
death or the Owner's 81st birthday, plus Premium Payments less any adjusted
partial withdrawals since that anniversary. For this purpose, the issue date
will be treated as a Policy Anniversary.
Under both Death Benefit Options, if the surviving spouse elects to continue
the Policy in lieu of receiving the Death Benefit, an amount equal to the
excess, if any, of the Guaranteed Minimum Death Benefit (i.e., either the
Annual Step-Up Death Benefit or the 5% Compound Death Benefit) over the
Annuity Purchase Value, will then be added to the Annuity Purchase Value. This
amount will be added only once, at the time of such election.
The 5% Compound Death Benefit is not available if either the Annuitant or
the Owner is age 75 or higher on the issue date; in this case, the Annual
Step-Up Death Benefit will apply. For issue age under age 75, if no choice is
made in the Policy application then the 5% Compound Death Benefit will apply.
After the Date of Issue, an election cannot be made and the Death Benefit
option cannot be changed.
Adjusted Partial Withdrawal. To determine the GMDB for each partial
withdrawal, the Adjusted Partial Withdrawal is the sum of (1) and (2), where
(1) The Surrender charge free/adjustment free withdrawal amount taken and,
(2) the product of (a) times (b) where:
(a)is the ratio of the amount of the Excess Partial Withdrawal to the
Annuity Purchase Value on the date of (but prior to) the Excess Partial
Withdrawal; and
(b) is the Death Benefit on the date of (but prior to) the Excess Partial
Withdrawal.
If a partial withdrawal is taken when the GMDB exceeds the Annuity Purchase
Value, then the partial withdrawal amount used to determine the GMDB will
exceed the amount of the partial withdrawal. In that case, the total proceeds
of a partial withdrawal followed by a Death Benefit could be less than total
Premium Payments.
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<PAGE>
For Policies issued prior to the offering of form number AV254 101 87 196
which do not contain Endorsement AE 871 295, the Death Benefit will be the
greater of (a) the Annuity Purchase Value, or (b) total Premium Payments less
partial withdrawals as defined above for determining GMDB, plus interest at a
5% annual rate from the payment or withdrawal date to the Annuitant's date of
death.
For Policies issued under form number AV254 101 87 196 or with Endorsement
AE 871 295, the Death Benefit is payable if the Annuitant is the Owner and the
Owner dies prior to the Annuity Commencement Date. Note that this Death
Benefit is payable on the death of the Annuitant who is the Owner, not the
death of the Owner, if different (if the Annuitant who is not the Owner dies,
the Owner will become the Annuitant unless the Owner specifically requests on
the Policy application or in writing that the Death Benefit be paid upon the
Annuitant's death and PFL agrees to such election). For Policies issued prior
to the offering of form number AV254 101 87 196 which do not contain
Endorsement AE 871 295, then the Death Benefit is payable on the Annuitant's
death prior to the Annuity Commencement Date (regardless of whether the
Annuitant is also the Owner). See your Policy form.
Due Proof of Death of the Annuitant is proof that the Annuitant who is the
Owner died prior to the commencement of Annuity Payments. Upon receipt of this
proof and an election of a method of settlement and return of the Policy, the
Death Benefit generally will be paid within seven days, or as soon thereafter
as PFL has sufficient information about the Beneficiary to make the payment.
The Beneficiary may receive the amount payable in a lump sum cash benefit, or,
subject to any limitation under any state or federal law, rule, or regulation,
under one of the Annuity Payment Options described above, unless a settlement
agreement is effective at the death of the Owner preventing such election.
If the Annuitant was the Policy Owner, and the Beneficiary was not the
Annuitant's spouse, the Death Benefit must (1) be distributed within five
years of the date of the deceased Owner's death, or (2) payments under a
Payment Option must begin within one year of the deceased Owner's death and
must be made for the Beneficiary's lifetime or for a period certain (so long
as any certain period does not exceed the Beneficiary's life expectancy).
Death proceeds which are not paid to or for the benefit of a natural person
must be distributed within five years of the date of the deceased Owner's
death. If the sole Beneficiary is the deceased Owner's surviving spouse, such
spouse may elect to continue the Policy as the new Annuitant and Policy Owner
instead of receiving the Death Benefit. (See "Federal Tax Matters" in the
Statement of Additional Information.)
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Death On or After Annuity Commencement Date. The death benefit payable on or
after the Annuity Commencement Date depends on the Payment Option selected. If
any Owner dies on or after the Annuity Commencement Date, but before the
entire interest in the Policy is distributed, the remaining portion of such
interest in the Policy will be distributed at least as rapidly as under the
method of distribution being used as of the date of that Owner's death.
Beneficiary. The Beneficiary designation in the application will remain in
effect until changed. The Policy Owner may change the designated Beneficiary
by sending Written Notice to PFL. The Beneficiary's consent to such change is
not required unless the Beneficiary was irrevocably designated or consent is
required by law. (If an irrevocable Beneficiary dies, the Policy Owner may
then designate a new Beneficiary.) The change will take effect as of the date
the Policy Owner signs the Written Notice, whether or not the Policy Owner is
living when the Notice is received by PFL. PFL will not be liable for any
payment made before the Written Notice is received. If more than one
Beneficiary is designated, and the Policy Owner fails to specify their
interests, they will share equally.
DEATH OF OWNER
Federal tax law requires that if any Policy Owner (including any joint Owner
or any Successor Policy Owner who has become a current Owner) dies before the
Annuity Commencement Date, then the entire value of the Policy must generally
be distributed within five years of the date of death of such Policy Owner.
Certain rules apply where 1) the spouse of the deceased Owner is the sole
beneficiary, 2) the Policy Owner is not a natural person and the primary
Annuitant dies or is changed, or 3) any Policy Owner dies after the Annuity
Commencement Date. See "Federal Tax Matters" in the Statement of Additional
Information for a detailed description of these rules. Other rules may apply
to Qualified Policies. (See also "Death Benefits" p. 41)
RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM
Section 36.105 of the Texas Educational Code permits participants in the
Texas Optional Retirement Program (ORP) to withdraw their interest in a
variable annuity Policy issued under the ORP only upon: (1) termination of
employment in the Texas public institutions of higher education; (2)
retirement; or (3) death. Accordingly, a participant in the ORP (or the
participant's estate if the participant has died) will be required to obtain a
certificate of termination from the employer or a certificate of death before
the account can be redeemed.
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RESTRICTIONS UNDER SECTION 403(B) PLANS
Section 403(b) of the Internal Revenue Code provides for tax-deferred
retirement savings plans for employees of certain non-profit and educational
organizations. In accordance with the requirements of Section 403(b), any
Policy used for a 403(b) plan will prohibit distributions of elective
contributions and earnings on elective contributions except upon death of the
employee, attainment of age 59 1/2, separation from service, disability, or
financial hardship. In addition, income attributable to elective contributions
may not be distributed in the case of hardship.
RESTRICTIONS UNDER QUALIFIED POLICIES
Other restrictions with respect to the election, commencement, or
distribution of benefits may apply under Qualified Policies or under the terms
of the plans in respect of which Qualified Policies are issued.
CHARGES AND DEDUCTIONS
No deductions are made from Premium Payments, so that the full amount of
each Premium Payment is invested in one or more of the Accounts. PFL will make
certain charges and deductions in connection with the Policy in order to
compensate it for incurring expenses in distributing the Policy, bearing
mortality and expense risks under the Policy, and administering the Accounts
and the Policies. Charges may also be made for premium taxes, federal, state
or local taxes, or for certain transfers or other transactions. Charges and
expenses are also deducted from the Underlying Funds.
CONTINGENT DEFERRED SALES CHARGE
PFL will incur expenses relating to the sale of Policies, including
commissions to registered representatives and other promotional expenses. PFL
may apply a Contingent Deferred Sales Charge to any amount surrendered (i.e.,
withdrawn) in connection with a full or partial Policy surrender in order to
cover distribution expenses. A Contingent Deferred Sales Charge will not be
applied to withdrawal, after the first Policy Year, of up to 10% of the
Annuity Purchase Value, if there have been no withdrawals in the current
Policy Year.
For Policies issued under form number AV254 101 87 196 or with Endorsement
AE 847 394 or a similar endorsement (depending on the state of issuance), the
Contingent Deferred Sales Charge is not imposed on partial or complete
surrenders if the Owner: 1) has been confined in a hospital or nursing
facility for 30 consecutive days or 2) has been diagnosed as having a terminal
condition as defined in the Policy or endorsement. (This benefit is not
available in all states, see the Policy or endorsement for details.) A
Contingent Deferred Sales Charge will also not be applied if the withdrawal is
necessary to meet the minimum distribution requirements for that policy
specified by the IRS for tax qualified plans. The Contingent Deferred Sales
Charge is also waived upon certain Systematic Payouts (see p. 36).
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The amount of the Contingent Deferred Sales Charge is determined by
multiplying the amount of the premium withdrawn by the applicable Contingent
Deferred Sales Charge Percentage. The applicable Contingent Deferred Sales
Charge Percentage will depend upon the number of Policy Anniversaries that
have elapsed since the Premium Payment that is being withdrawn was made. For
this purpose, surrenders are allocated to Premium Payments on a "first in-
first out" basis, i.e., first to the oldest Premium Payment, then to the next
oldest Premium Payment, and so on. Premium Payments are deemed to be withdrawn
before earnings, and after all Premium Payments have been withdrawn, the
remaining Adjusted Annuity Purchase Value may be withdrawn without any
Contingent Deferred Sales Charge. The following is the table of Contingent
Deferred Sales Charge Percentages:
<TABLE>
<CAPTION>
NUMBER OF POLICY APPLICABLE CONTINGENT
YEARS SINCE DEFERRED SALES
PREMIUM PAYMENT CHARGE PERCENTAGE
---------------- ---------------------
<S> <C>
Less than 1......................................... 7%
At least 1 and less than 2.......................... 6%
At least 2 and less than 3.......................... 5%
At least 3 and less than 4.......................... 4%
At least 4 and less than 5.......................... 3%
At least 5 and less than 6.......................... 2%
At least 6 and less than 7.......................... 1%
</TABLE>
PFL anticipates that the Contingent Deferred Sales Charge will not generate
sufficient funds to pay the cost of distributing the Policies. If this charge
is insufficient to cover the distribution expenses, the deficiency will be met
from PFL's general funds, which will include amounts derived from the charge
for mortality and expense risks.
MORTALITY AND EXPENSE RISK CHARGE
PFL imposes a daily charge as compensation for bearing certain mortality and
expense risks in connection with the Policies. This charge is equal to an
effective annual rate of 1.25% of the daily net asset value of a fund share
held in the Mutual Fund Account for each Subaccount. The Mortality and Expense
Risk Charge is reflected in the Accumulation or Annuity Unit Values for the
Policy for each Subaccount.
Annuity Purchase Values and Annuity Payments are not affected by changes in
actual mortality experience nor by actual expenses incurred by PFL. The
mortality risks assumed by PFL arise from its contractual obligations to make
Annuity Payments (determined in accordance with the Annuity tables and other
provisions contained in the Policy) and to pay Death Benefits prior to the
Annuity Commencement Date. Thus, Owners are assured that neither an
Annuitant's own longevity nor an unanticipated improvement in general life
expectancy will adversely affect the monthly Annuity payments that the
Annuitant will receive under the Policy.
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PFL also bears substantial risk in connection with the Death Benefit
Guarantee since PFL will pay a Death Benefit equal to the Guaranteed Minimum
Guaranteed Death Benefit (i.e., 5% Compound Death Benefit or Annual Step-Up
Death Benefit) if that amount is higher than the Annuity Purchase Value.
The expense risk assumed by PFL is the risk that PFL's actual expenses in
administering the Policy and the Accounts will exceed the amount recovered
through the Administrative and Policy Maintenance Charges.
If the Mortality and Expense Risk Charge is insufficient to cover PFL's
actual costs, PFL will bear the loss; conversely, if the charge is more than
sufficient to cover costs, the excess will be profit to PFL. PFL expects a
profit from this charge. To the extent that the Contingent Deferred Sales
Charge is insufficient to cover the actual cost of Policy distribution, the
deficiency will be met from PFL's general corporate assets, which may include
amounts, if any, derived from the Mortality and Expense Risk Charge. A
mortality and expense risk charge is assessed during the annuity phase for all
Variable Annuity Options including those that do not carry a life contingency.
ADMINISTRATIVE CHARGES
In order to cover the costs of administering the Policies and the Accounts,
PFL deducts a Policy Maintenance Charge from the Annuity Purchase Value of
each Policy, and also deducts a daily Administrative Expense Charge from the
assets of each Subaccount of the Mutual Fund Account.
The annual Policy Maintenance Charge is deducted from the Annuity Purchase
Value of each Policy on each Policy Anniversary prior to the Annuity
Commencement Date. After the Annuity Commencement Date, the charge is not
deducted. This annual Policy Maintenance Charge generally is $35 and it will
not be increased. It will never exceed 2% of the Annuity Purchase Value. For
Policies issued on or after May 1, 1995, either with (1) form number AV254 101
87 196 or with (2) endorsement AE 871 295, this charge is waived if the sum of
the Premium Payments made less the sum of all partial withdrawals is at least
$50,000 on the Policy Anniversary. PFL does not anticipate realizing any
profit from this charge. The Policy Maintenance Charge will be deducted only
from the Subaccounts in the Mutual Fund Account, in the same proportion that
the Policy Owner's interest in each Subaccount bears to the Annuity Purchase
Value in the Mutual Fund Account.
PFL also deducts a daily Administrative Expense Charge from the net assets
of each Subaccount of the Mutual Fund Account. This charge is equal to an
effective annual rate of .15% of the daily net asset value of a fund share
held in the Mutual Fund Account for each Subaccount. The Administrative
Expense Charge may be increased in the future (but the combined total of this
charge and the Mortality and Expense Risk Charge will never exceed 1.40%). PFL
does not anticipate realizing any profit from this charge.
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<PAGE>
PREMIUM TAXES
PFL currently makes no deduction from the Premium Payments for any state
premium taxes PFL pays in connection with Premium Payments under the Policies.
However, PFL will deduct the aggregate premium taxes paid on behalf of a
particular Policy from the Annuity Purchase Value on (i) the Annuity
Commencement Date (thus reducing the Adjusted Annuity Purchase Value), (ii)
the total surrender of a Policy, or (iii) payment of the death proceeds of a
Policy.
FEDERAL, STATE AND LOCAL TAXES
No charges are currently made for federal, state, or local taxes other than
premium taxes. However, PFL reserves the right to deduct charges in the future
for any taxes or other economic burden resulting from the application of any
tax laws that PFL determines to be atttributable to the accounts or the
policies.
TRANSFER CHARGE
There is no charge for the first 12 transfers between Investment Options in
each Policy Year. PFL reserves the right to impose a $10 charge for the
thirteenth and each subsequent transfer request made by the Owner during a
single Policy Year. For the purpose of determining whether a transfer charge
is payable, Premium Payment allocations are not considered transfers. All
transfer requests made simultaneously will be treated as a single request. No
transfer charge will be imposed for any transfer which is not at the Owner's
request.
OTHER EXPENSES INCLUDING INVESTMENT ADVISORY FEES
Each of the Portfolios of the Underlying Funds is responsible for all of its
expenses. In addition, charges will be made against each of the Portfolios of
the Underlying Funds for investment advisory services provided to the
Portfolio. The net assets of each Portfolio of the Underlying Funds will
reflect deductions in connection with the investment advisory fee and other
expenses.
For more information concerning the investment advisory fee and other
charges against the Portfolios, see the prospectuses for the Underlying Funds,
current copies of which accompany this Prospectus.
EMPLOYEE AND AGENT PURCHASES
The Policy may be acquired by an employee or registered representative of
any broker/dealer authorized to sell the Policy or their spouse or minor
children, or by an officer, director, trustee or bona-fide full-time employee
of PFL or its affiliated companies or their spouse or minor children. In such
case, a bonus of 5% of each premium deposit may be credited to the Policy due
to lower acquisition costs PFL experiences on these purchases. The bonus will
be reported to the Internal Revenue Service as taxable income to the employee
or registered representative. Compensation to the registered representative
and broker/dealer will be reduced by the amount of such bonus.
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<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary does not constitute tax advice. It is a general
discussion of certain of the expected federal income tax consequences of
investment in and distributions with respect to a Policy, based on the
Internal Revenue Code of 1986, as amended (the "Code"), proposed and final
Treasury Regulations thereunder, judicial authority, and current
administrative rulings and practice. This summary discusses only certain
federal income tax consequences to "United States Persons," and does not
discuss state, local, or foreign tax consequences. United States Persons means
citizens or residents of the United States, domestic corporations, domestic
partnerships and trusts or estates that are subject to United States federal
income tax regardless of the source of their income.
At the time the initial Premium Payment is paid, a prospective purchaser
must specify whether he or she is purchasing a Nonqualified Policy or a
Qualified Policy. If the initial Premium Payment is derived from an exchange
or surrender of another annuity policy, PFL may require that the prospective
purchaser provide information with regard to the federal income tax status of
the previous annuity policy. PFL will require that persons purchase separate
Policies if they desire to invest monies qualifying for different annuity tax
treatment under the Code. Each such separate Policy would require the minimum
initial Premium Payment stated above. Subsequent Additional Premium Payments
under a Policy must qualify for the same federal income tax treatment as the
initial Premium Payment under the Policy; PFL will not accept a Subsequent
Additional Premium Payment under a Policy if the federal income tax treatment
of such Premium Payment would be different from that of the initial Premium
Payment.
The Qualified Policies were designed for use by retirement plans and
individual retirement accounts that qualify for special federal income tax
treatment under Sections 401(a), 403(b), or 408(a), or 457 of the Code and
individuals purchasing individual retirement annuities that qualify for
special federal income tax treatment under Section 408(b) of the Code. Certain
requirements must be satisfied in purchasing a Qualified Policy in order for
the plan, account or annuity to retain its special tax treatment. This summary
is not intended to cover such requirements, and assumes that Qualified
Policies are purchased pursuant to retirement plans or individual retirement
accounts, or are individual retirement annuities, that qualify for such
special tax treatment. This summary was prepared by PFL after consultation
with tax counsel, but no opinion of tax counsel has been obtained.
THE DISCUSSION SET FORTH BELOW IS INCLUDED FOR GENERAL PURPOSES ONLY. EACH
POTENTIAL PURCHASER IS URGED TO CONSULT HIS/HER OWN TAX ADVISER AS TO THE
CONSEQUENCES OF INVESTMENT IN A POLICY UNDER FEDERAL AND APPLICABLE STATE,
LOCAL AND FOREIGN TAX LAWS.
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<PAGE>
TAX STATUS OF THE POLICY
The following discussion is based on the assumption that the Policy
qualifies as an annuity contract for federal income tax purposes. The
Statement of Additional Information discusses the tax requirements for
qualifying as an annuity contract.
TAXATION OF ANNUITIES
The discussion below applies only to those Policies owned by natural
persons, and that qualify as annuity contracts for federal income tax
purposes. With respect to Owners who are natural persons, the Policy should be
treated as an annuity contract for federal income tax purposes.
In General. Except as described below with respect to Owners who are not
natural persons, an Owner who holds a Policy satisfying the diversification
and distribution requirements described in the Statement of Additional
Information should not be taxed on increases in the Annuity Purchase Value
until an amount is received or deemed received, e.g., upon a partial or full
surrender or as Annuity Payments under the Annuity Option selected. Generally,
any amount received or deemed received under a Nonqualified Annuity Contract
prior to the Annuity Commencement Date is deemed to come first from any
"Income on the Contract" and then from the "Investment in the Contract." The
"Investment in the Contract" generally equals total premium payments less
amounts received which were not includable in gross income. To the extent that
the Annuity Purchase Value (ignoring any surrender charges except on a full
surrender) exceeds the "Investment in the Contract," such excess constitutes
the "Income on the Contract." For these purposes such "Income on the Contract"
shall be computed by reference to the aggregation rules described below, and
the amount includable in gross income will be taxable as ordinary income. If
at the time that any amount is received or deemed received there is no "Income
on the Contract" (e.g., because the gross Annuity Purchase Value does not
exceed the "Investment in the Contract" and no aggregation rule applies), then
such amount received or deemed received will not be includable in gross
income, and will simply reduce the "Investment in the Contract."
For this purpose, the assignment, pledge or agreement to assign or pledge
any portion of the Annuity Purchase Value (including assignment of Owner's
right to receive Annuity Payments prior to the Annuity Commencement Date)
generally will be treated as a distribution in the amount of such portion of
the Annuity Purchase Value. Additionally, if an Owner designates a new Owner
prior to the Annuity Commencement Date without receiving full and adequate
consideration, the old Owner generally will be treated as receiving a
distribution under the Policy in an amount equal to the Annuity Purchase
Value. A transfer of ownership or an assignment of a Policy, or designation of
an Annuitant or Beneficiary who is not also the Owner, as well as the
selection of certain Annuity Commencement Dates, may result in certain tax
consequences to the Owner that are not discussed herein. An Owner
contemplating any such transfer, designation, selection or assignment of a
Policy should contact a competent tax adviser with respect to the potential
tax effects of such a transaction.
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<PAGE>
Aggregation Rules. Generally all nonqualified deferred annuity contracts
issued by the same company (or an affiliated company) to the same owner during
any calendar year shall be treated as one annuity contract, and "aggregated"
for purposes of determining the amount includable in gross income. In
addition, for such purposes all individual retirement annuities and accounts
under Section 408 of the Code for an individual are aggregated, and generally
all distributions therefrom during a calendar year are treated as one
distribution made as of the end of such year.
Surrenders. In the case of a partial surrender (including systematic
withdrawals) under a Nonqualified Policy, the amount received generally will
be includable in gross income to the extent that it does not exceed the
"Income on the Contract" which is generally equal to the excess of the Annuity
Purchase Value immediately before the partial surrender over the "Investment
in the Contract" at that time. However, for these purposes the Annuity
Purchase Value immediately before a partial surrender may have to be increased
by any positive Excess Interest Adjustment which results from such a partial
surrender or which could result from a simultaneous full surrender, and may
need further adjustments if the aggregation rules apply. There is, however, no
definitive guidance on the proper tax treatment of Excess Interest
Adjustments, and the Owner should contact a competent tax adviser with respect
to the potential tax consequences of an Excess Interest Adjustment. In the
case of a partial surrender (including systematic withdrawals) under a
Qualified Policy, a ratable portion of the amount received is generally
excludable from gross income, based on the ratio of the "Investment in the
Contract" to the individual's total account balance or accrued benefit under
the retirement plan at the time of each such payment. For a Qualified Policy,
the "Investment in the Contract" can be zero. Special tax rules may be
available for certain distributions from a Qualified Policy. In the case of a
full surrender under a Nonqualified Policy or a Qualified Policy, the amount
received generally will be taxable only to the extent it exceeds the
"Investment in the Contract, unless the aggregation rules apply."
Annuity Payments. Although the tax consequences may vary depending on the
Annuity Payment Option elected under the Policy, in general only a portion of
the Annuity Payments received after the Annuity Commencement Date will be
includable in the gross income of the recipient.
For Fixed Annuity Payments, in general the excludable portion of each
payment is determined by dividing the "Investment in the Contract" on the
Annuity Commencement Date by the total expected value of the Annuity Payments
for the term of the payments. The remainder of each Annuity Payment is
includable in gross income. Once the "Investment in the Contract" has been
fully recovered, the full amount of any additional Annuity Payments is
includable in gross income.
For Variable Annuity Payments, the includable portion is generally
determined by an equation that establishes a specific dollar amount of each
payment that is excludable from gross income. This dollar amount is
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<PAGE>
determined by dividing the "Investment in the Contract" on the Annuity
Commencement Date by the total number of expected periodic payments. The
remainder of each Annuity Payment is includable in gross income. Once the
"Investment in the Contract" has been fully recovered, the full amount of any
additional Annuity Payments is includable in gross income.
If, after the Annuity Commencement Date, Annuity Payments cease by reason of
the death of the Annuitant, the excess (if any) of the "Investment in the
Contract" as of the Annuity Commencement Date over the aggregate amount of
Annuity Payments received on or after the Annuity Commencement Date that was
excluded from gross income is allowable as a deduction for the last taxable
year of the Annuitant.
Taxation of Death Benefit Proceeds. Amounts may be distributed from the
Policy because of the death of an Owner or the Annuitant. Generally, such
amounts are includible in the income of the recipient as follows: (1) if
distributed in a lump sum, they are taxed in the same manner as a full
surrender, as described above, or (2) if distributed under an Annuity Option,
they are taxed in the same manner as Annuity Payments, as described above. For
these purposes, the "Investment in the Contract" is not affected by the
Owner's or Annuitant's death. That is, the "Investment in the Contract"
remains generally the total premium payments less amounts received which were
not includible in gross income.
Penalty Taxes. In the case of any amount received or deemed received from
the Policy, e.g., upon a surrender of a Policy or a deemed distribution under
a Policy resulting from a pledge, assignment or agreement to pledge or assign
or an Annuity Payment with respect to a Policy, there may be imposed on the
recipient a federal penalty tax equal to 10% of the amount includable in gross
income. The penalty tax generally will not apply to any distribution: (i) made
on or after the date on which the taxpayer attains age 59 1/2; (ii) made as a
result of the death of the holder (generally the Owner); (iii) attributable to
the disability of the taxpayer; or (iv) which is part of a series of
substantially equal periodic payments made (not less frequently than annually)
for the life (or life expectancy) of the taxpayer or the joint lives (or joint
life expectancies) of such taxpayer and his/her beneficiary. Other rules may
apply to Qualified Policies.
Withholding. The portion of any distribution under a Policy that is
includable in gross income will be subject to federal income tax withholding
unless the recipient of such distribution elects not to have federal income
tax withheld. Election forms will be provided at the time distributions are
requested or made. For certain Qualified Policies, certain distributions are
subject to mandatory withholding.
Qualified Policies. The Qualified Policy is designed for use with several
types of tax-qualified retirement plans. The tax rules applicable to
participants and beneficiaries in tax-qualified retirement plans vary
according to the type of plan and the terms and conditions of the plan.
Special favorable tax treatment may be available for certain types of
contributions and distributions. Adverse tax consequences may result from
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contributions in excess of specified limits; distributions prior to age 59 1/2
(subject to certain exceptions); distributions that do not conform to
specified commencement and minimum distribution rules; aggregate distributions
in excess of a specified annual amount; and in other specified circumstances.
Some retirement plans are subject to distribution and other requirements that
are not incorporated into our Policy administration procedures. Owners,
participants and beneficiaries are responsible for determining that
contributions, distributions and other transactions with respect to the
Policies comply with applicable law.
PFL makes no attempt to provide more than general information about use of
the Policy with the various types of retirement plans. Purchasers of Policies
for use with any retirement plan should consult their legal counsel and tax
adviser regarding the suitability of the Policy.
Individual Retirement Annuities. In order to qualify as an individual
retirement annuity under Section 408(b) of the Code, a Policy must contain
certain provisions: (i) the Owner must be the Annuitant; (ii) the Policy may
not be transferable by the Owner, e.g., the Owner may not designate a new
Owner, designate a Contingent Owner or assign the Policy as collateral
security; (iii) the total Premium Payments for any calendar year may not
exceed $2,000, unless the portion of such Premium Payments in excess of $2,000
qualifies as a rollover amount or contribution under Sections 402(c) or
408(d)(3) of the Code; (iv) Annuity Payments or withdrawals must begin no
later than April 1 of the calendar year following the calendar year in which
the Annuitant attains age 70 1/2; (v) an Annuity Payment Option with a Period
Certain that will guarantee Annuity Payments beyond the life expectancy of the
Annuitant and the Beneficiary may not be selected; and (vi) certain payments
of Death Benefits must be made in the event the Annuitant dies prior to the
distribution of the Annuity Purchase Value. Policies intended to qualify as
individual retirement annuities under Section 408(b) of the Code contain such
provisions.
Section 408 of the Code also indicates that no part of the funds for an
individual retirement account or annuity should be invested in a life
insurance contract, but the regulations thereunder allow such funds to be
invested in an annuity contract that provides a death benefit that equals the
greater of the premiums paid or the cash value for the contract. The Policy
provides an enhanced death benefit that could exceed the amount of such a
permissible death benefit, but it is unclear to what extent such an enhanced
death benefit could disqualify the Policy under Section 408 of the Code. The
Internal Revenue Service has not reviewed the Policy for qualification as an
IRA, and has not addressed in a ruling of general applicability whether an
enhanced death benefit provision, such as the provision in the Policy,
comports with IRA qualification requirements.
Section 403(b) Plans. Under Section 403(b) of the Code, payments made by
public school systems and certain tax exempt organizations to purchase
Policies for their employees are excludable from the gross income of the
employee, subject to certain limitations. However, such payments may be
subject to FICA (Social Security) taxes. Additionally, in accordance with
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the requirements of the Code Section 403(b) annuities generally may not permit
distribution of (i) elective contributions made in years beginning after
December 31, 1988, and (ii) earnings on those contributions and (iii) earnings
on amounts attributed to elective contributions held as of the end of the last
year beginning before January 1, 1989. Distributions of such amounts will be
allowed only upon the death of the employee, on or after attainment of age 59
1/2, separation from service, disability, or financial hardship, except that
income attributable to elective contributions may not be distributed in the
case of hardship.
Corporate Pension and Profit-Sharing Plans and H.R. 10 Plans. Sections
401(a) and 403(a) of the Code permit corporate employers to establish various
types of retirement plans for employees and self-employed individuals to
establish qualified plans for themselves and their employees. Such retirement
plans may permit the purchase of the Policies to accumulate retirement
savings. Adverse tax consequences to the plan, the participant or both may
result if the Policy is assigned or transferred to any individual as a means
to provide benefit payments.
Deferred Compensation Plans. Section 457 of the Code, while not actually
providing for a qualified plan as that term is normally used, provides for
certain deferred compensation plans with respect to service for state
governments, local governments, political sub-divisions, agencies,
instrumentalities and certain affiliates of such entities and tax exempt
organizations which enjoy special treatment. The Policies can be used with
such plans. Under such plans a participant may specify the form of investment
in which his or her participation will be made. All such investments, however,
are owned by, and are subject to, the claims of the general creditors of the
sponsoring employer. Depending on the terms of the particular plan, the
employer may be entitled to draw on deferred amounts for purposes unrelated to
its Section 457 plan obligations. In general, all amounts received under a
Section 457 plan are taxable and are subject to federal income tax withholding
as wages.
Non-natural Persons. Pursuant to Section 72(u) of the Code, an annuity
contract held by a taxpayer other than a natural person generally will not be
treated as an annuity contract under the Code; accordingly, an Owner who is
not a natural person will recognize as ordinary income for a taxable year the
excess of (i) the sum of the Cash Value as of the close of the taxable year
and all previous distributions under the Policy over (ii) the sum of the
Premium Payments paid for the taxable year and any prior taxable year and the
amounts includable in gross income for any prior taxable year with respect to
the Policy. For these purposes, the Annuity Purchase Value at year end may
have to be increased by any positive Excess Interest Adjustment which could
result from a full surrender at such time. There is, however, no definitive
guidance on the proper tax treatment of Excess Interest Adjustments and the
Owner should contact a competent tax adviser with respect to the potential tax
consequences of an Excess interest adjustment. Notwithstanding the preceding
sentences in this paragraph, Section 72(u) of the Code does not apply to (i) a
Policy the nominal Owner of which is not a natural person but the beneficial
Owner of which is a
- 54 -
<PAGE>
natural person, (ii) a Policy acquired by the estate of a decedent by reason
of such decedent's death, (iii) a Qualified Policy (other than one qualified
under Section 457) or (iv) a single-payment annuity the Annuity Commencement
Date for which is no later than one year from the date of the single Premium
Payment; instead, such Policies are taxed as described above under the heading
"Taxation of Annuities."
Possible Changes in Taxation. In past years, legislation has been proposed
in the U.S. Congress that would have adversely modified the federal taxation
of certain annuities. For example, one such proposal would have changed the
tax treatment of non-qualified annuities that did not have "substantial life
contingencies" by taxing income as it is credited to the annuity. Although as
of the date of this Prospectus Congress was not actively considering any
legislation regarding the taxation of annuities, there is always the
possibility that the tax treatment of annuities could change by legislation or
other means (such as IRS regulations, revenue rulings, judicial decisions,
etc.). Moreover, it is also possible that any change could be retroactive
(that is, effective prior to the date of the change).
DISTRIBUTOR OF THE POLICIES
AEGON USA Securities, Inc., an affiliate of PFL, is the principal
underwriter of the Policies. AEGON USA Securities, Inc. has entered or will
enter into one or more agreements with various broker-dealers for the
distribution of the Policies. Commissions on Policy sales are paid to dealers.
Commissions payable to a broker-dealer will be up to 4 1/2% of Premium
Payments. In addition, certain broker-dealers may receive additional
commissions of up to .75% of Premium Payments and certain expense allowances
based upon the attainment of specific sales volume targets and other factors.
Certain broker-dealers may also receive annual continuing fees based on
Annuity Purchase Values. These commissions are not deducted from Premium
Payments, they are paid by PFL.
VOTING RIGHTS
To the extent required by law, PFL will vote the Underlying Funds shares
held by the Mutual Fund Account at regular and special shareholder meetings of
the Underlying Funds in accordance with instructions received from persons
having voting interests in the portfolios. If, however, the 1940 Act or any
regulation thereunder should be amended or if the present interpretation
thereof should change, and as a result PFL determines that it is permitted to
vote the Underlying Funds' shares in its own right, it may elect to do so.
Before the Annuity Commencement Date, the Policy Owner holds the voting
interest in the selected Portfolios. The number of votes that an Owner has the
right to instruct will be calculated separately for each Subaccount. The
number of votes that an Owner has the right to instruct for a particular
Subaccount will be determined by dividing his or her Annuity Purchase Value in
the Subaccount by the net asset value per share of the
- 55 -
<PAGE>
corresponding Portfolio in which the Subaccount invests. Fractional shares
will be counted.
After the Annuity Commencement Date, the person receiving Annuity Payments
has the voting interest, and the number of votes decreases as Annuity Payments
are made and as the reserves for the Policy decrease. The person's number of
votes will be determined by dividing the reserve for the Policy allocated to
the applicable Subaccount by the net asset value per share of the
corresponding Portfolio. Fractional shares will be counted.
The number of votes that the Owner or person receiving income payments has
the right to instruct will be determined as of the date established by the
Underlying Funds for determining shareholders eligible to vote at the meeting
of the Underlying Funds. PFL will solicit voting instructions by sending
Owners or other persons entitled to vote written requests for instructions
prior to that meeting in accordance with procedures established by the
Underlying Funds. Portfolio shares as to which no timely instructions are
received and shares held by PFL in which Owners or other persons entitled to
vote have no beneficial interest will be voted in proportion to the voting
instructions that are received with respect to all Policies participating in
the same Subaccount.
Each person having a voting interest in a Subaccount will receive proxy
material, reports, and other materials relating to the appropriate Portfolio.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Mutual Fund Account is a party
or to which the assets of the Account are subject. PFL is not involved in any
litigation that is of material importance in relation to its total assets or
that relates to the Mutual Fund Account.
STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information is available (at no cost) which
contains more details concerning the subjects discussed in this Prospectus.
The following is the Table of Contents for that Statement:
- 56 -
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Policy--General Provisions............................................. 3
Owner.................................................................... 3
Entire Policy............................................................ 3
Deferment of Payment and Transfers....................................... 3
Misstatement of Age or Sex............................................... 4
Reallocation of Policy Values After the Annuity Commencement Date........ 4
Assignment............................................................... 4
Evidence of Survival..................................................... 4
Amendments............................................................... 4
Federal Tax Matters........................................................ 5
Tax Status of the Policy................................................. 5
Taxation of PFL.......................................................... 5
Investment Experience...................................................... 6
State Regulation of PFL.................................................... 9
Administration............................................................. 9
Records and Reports........................................................ 10
Distribution of the Policies............................................... 10
Custody of Assets.......................................................... 10
Historical Performance Data................................................ 10
Money Market Yields...................................................... 10
Other Subaccount Yields.................................................. 11
Total Returns............................................................ 12
Other Performance Data................................................... 13
Legal Matters.............................................................. 13
Independent Auditors....................................................... 13
Other Information.......................................................... 13
Financial Statements....................................................... 14
</TABLE>
- 57 -
<PAGE>
APPENDIX A
EXCESS INTEREST ADJUSTMENT(1)
The formula which will be used to determined the Excess Interest Adjustment
(EIA) is:
S*(G - C)* (M/12)
S= Gross amount being withdrawn that is subject to the EIA
G= Guaranteed Interest Rate in effect for the policy
C= Current Guaranteed Interest Rate then being offered on new premiums for
the next longer option period than "M". If this policy form or such an
option period is no longer offered, "C" will be the U.S. Treasury rate for
the next longer maturity (in whole years) than "M" on the 25th day of the
previous calendar month, plus up to 2%.
M= Number of months remaining in the current option period, rounded up to the
next higher whole number of months.
EXAMPLE 1 (FULL SURRENDER, RATES INCREASE BY 3%):
Single Premium: $50,000
Guarantee Period: 5 Years
Guarantee Rate: 5.50% per annum
Full Surrender: Middle of Contract Year 3
Annuity Purchase Value ("APV") at
middle of Contract Year 3 = 50,000* (1.055) R 2.5 = 57,161.18
Penalty Free Amount at middle of
Contract Year 3
= 57,161.18* .10 = 5,716.12
Amount Subject to EIA = 57,161.18 - 5,716.12 = 51,445.06
EIA Floor = 50,000* (1.03) R 2.5 = 53,834.80
Excess Interest Adjustment
G= .055
C= .085
M = 30
Excess Interest Adjustment = S* (G - C)* (M/12)
= 51,445.06* (.055 - .085)* (30/12)
= (3,858.38), but Excess Interest
Adjustment cannot cause the Adjusted
APV to fall below the floor, so the
adjustment is limited to 53,834.80 -
57,161.18 = (3,326.38)
Adjusted Annuity Purchase Value
(APV)
= APV + EIA = 57,161.18 + (3,326.38) =
53,834.80
A-1
<PAGE>
Surrender Charges = (50,000 - 5,716.12)* .05
= 2,214.19
Net Surrender Value at middle of
Contract Year 3
= 53,834.80 - 2,214.19
= 51,620.61
EXAMPLE 2 (FULL SURRENDER, RATES DECREASE BY 1%):
Single Premium: $50,000
Guarantee Period: 5 Years
Guarantee Rate: 5.50% per annum
Full Surrender: Middle of Contract Year 3
Annuity Purchase Value at middle
of Contract Year 3
= 50,000* (1.055) R 2.5 = 57,161.18
Penalty Free Amount at middle of
Contract Year 3
= 57,161.18* .10 = 5,716.12
Amount Subject to EIA = 57,161.18 - 5,716.12 = 51,445.06
EIA Floor = 50,000* (1.03) R 2.5 = 53,834.80
Excess Interest Adjustment
G= .055
C= .045
M = 30
Excess Interest Adjustment = S* (G - C)* (M/12)
= 51,445.06* (.055 - .045)* (30/12)
= 1,286.13
Adjusted APV = 57,161.18 + 1,286.13 = 58,447.31
Surrender Charges = (50,000 - 5,716.12)* .05
= 2,214.19
Net Surrender Value at middle of
Contract Year 3 = 58,447.31 - 2,214.19
= 56,233.12
A-2
<PAGE>
On a partial surrender, PFL will pay the policy holder the full amount of
withdrawal requested (as long as the Annuity Purchase Value is sufficient).
Surrender Charge free/adjustment free withdrawals will reduce the APV by the
amount withdrawn. Amounts withdrawn in excess of the Surrender Charge
free/adjustment free portion will reduce the APV by an amount equal to:
X-Y+Z
X= Excess Partial Withdrawal
Y= Excess Interest Adjustment = (X)*(G-C)*(M/12) where G, C, and M are defined
above.
Z= Surrender Charge on X and Y.
EXAMPLE 3 (PARTIAL WITHDRAWAL, RATES INCREASE BY 1%):
Single Premium: $50,000
Guarantee Period: 5 Years
Guarantee Rate: 5.50% per annum
Partial Surrender: $20,000; Middle of Contract Year 3
Annuity Purchase Value at middle
of Contract Year 3
= 50,000* (1.055) R 2.5 = 57,161.18
Penalty Free Amount at middle of
Contract Year 3 = 57,161.18* .10 = 5,716.12
Excess Interest/Surrender Charge (SC) Adjustment
X= 20,000 - 5,716.12 = 14,283.88
G= .055
C= .065
M= 30
Y= 14,283.88* (.055 - .065)* (30/12) = (357.10)
Z= ..05* (20,000 - 5,716.12 - 357.10) = 696.34
Reduction to APV for Excess
Withdrawal:
= X - Y + Z
= 14,283.88 - (357.10) + 696.34
= 15,337.32
Remaining Annuity Purchase Value at middle of Contract Year 3
= 57,161.18 - 5,716.12 - 15,337.32
= 36,107.74
A-3
<PAGE>
EXAMPLE 4 (PARTIAL WITHDRAWAL, RATES DECREASE BY 1%):
Single Premium: $50,000
Guarantee Period: 5 Years
Guarantee Rate: 5.50% per annum
Partial Surrender: $20,000; Middle of Contract Year 3
Annuity Purchase Value at middle of
Contract Year 3 = 50,000* (1,055) R 2.5 = 57,161.18
Penalty Free Amount at middle of
Contract Year 3
= 57,161.18* .10 = 5,716.12
Excess Interest/Surrender Charge Adjustment
X= 20,000 - 5,716.12 = 14,283.88
G= .055
C= .045
M= 30
Y= 14.283.88*(.055 - .045)*(30/12) = 357.10
Z= .05* (20,000 - 5,716.12 + 357.10) = 732.05
Reduction to APV for Excess Withdrawal:
= X-Y + Z
= 14,283.88 - 357.10 + 732.05
Remaining Annuity Purchase Value at = 14,658.83
middle of Contract Year 3
= 57,161.18 - 5,716.12 - 14,658.83
= 36,786.23
(1)* represents multiplication;
R represents exponentiation.
A-4
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
THE ENDEAVOR VARIABLE ANNUITY
Issued through
PFL ENDEAVOR VARIABLE
ANNUITY ACCOUNT
Offered by
PFL LIFE INSURANCE COMPANY
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-0001
----------------
This Statement of Additional Information expands upon subjects discussed in
the current Prospectus for the Endeavor Variable Annuity (the "Policy")
offered by PFL Life Insurance Company. You may obtain a copy of the Prospectus
dated May 1, 1996 by calling 1-800-525-6205, or by writing to the
Administrative and Service Office, Financial Markets Division--Variable
Annuity Dept., 4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499-0001. Terms
used in the current Prospectus for the Policy are incorporated in this
Statement of Additional Information.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE
READ ONLY IN CONJUNCTION WITH THE PROSPECTUSES FOR THE POLICY, ENDEAVOR SERIES
TRUST AND THE GROWTH PORTFOLIO OF THE WRL SERIES FUND, INC.
Dated: May 1, 1996
- 1 -
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Policy--General Provisions............................................ 3
Owner................................................................... 3
Entire Policy........................................................... 3
Deferment of Payment and Transfers...................................... 3
Misstatement of Age or Sex.............................................. 4
Reallocation of Policy Values After the Annuity Commencement Date....... 4
Assignment.............................................................. 4
Evidence of Survival.................................................... 4
Amendments.............................................................. 4
Federal Tax Matters (49).................................................. 5
Tax Status of the Policy................................................ 5
Taxation of PFL......................................................... 5
Investment Experience..................................................... 6
State Regulation of PFL................................................... 9
Administration............................................................ 9
Records and Reports....................................................... 10
Distribution of the Policies (55)......................................... 10
Custody of Assets......................................................... 10
Historical Performance Data (19).......................................... 10
Money Market Yields..................................................... 10
Other Subaccount Yields................................................. 11
Total Returns........................................................... 12
Other Performance Data.................................................. 13
Legal Matters............................................................. 13
Independent Auditors...................................................... 13
Other Information......................................................... 13
Financial Statements (18)................................................. 14
(Numbers in parenthesis indicate corresponding pages of the Prospectus).
</TABLE>
- 2 -
<PAGE>
In order to supplement the description in the Prospectus, the following
provides additional information about PFL and the Policy which may be of
interest to an Owner.
THE POLICY--GENERAL PROVISIONS
OWNER
The Policy shall belong to the Policy Owner upon issuance of the Policy
after completion of an application and delivery of the initial Premium
Payment. While the Annuitant is living, the Owner may: (1) assign the Policy;
(2) surrender the Policy; (3) amend or modify the Policy with PFL's consent;
(4) receive annuity payments or name a Payee to receive the payments; and
(5) exercise, receive and enjoy every other right and benefit contained in the
Policy. The exercise of these rights may be subject to the consent of any
assignee or irrevocable Beneficiary.
A Successor Owner can be named in the Policy application or in a Written
Notice. The Successor Owner will become the new Owner upon the Owner's death,
if the Owner predeceases the Annuitant. If no Successor Owner survives the
Owner and the Owner predeceases the Annuitant, the Owner's estate will become
the Owner.
The Owner may change the ownership of the Policy in a Written Notice. When
this change takes effect, all rights of ownership in the Policy will pass to
the new Owner.
When there is a change of Owner or Successor Owner, the change will take
effect as of the date the Owner signs the Written Notice, subject to any
payment PFL has made or action PFL has taken before recording the change.
Changing the Owner or naming a new Successor Owner cancels any prior choice of
Successor Owner, but does not change the designation of the Beneficiary or the
Annuitant.
If ownership is transferred (except to the Owner's spouse) because the Owner
dies before the Annuitant, the Cash Value generally must be distributed to the
Successor Owner within five years of the Owner's death, or payments must be
made for a period certain or for the Successor Owner's lifetime so long as any
period certain does not exceed that Successor Owner's life expectancy, if the
first payment begins within one year of the Owner's death.
ENTIRE POLICY
The Policy and any endorsements thereon and the Policy application
constitute the entire contract between PFL and the Owner. All statements in
the application are representations and not warranties. No statement will
cause the Policy to be void or to be used in defense of a claim unless
contained in the application.
DEFERMENT OF PAYMENT AND TRANSFERS
Payment of any amount due from the Mutual Fund Account in respect of a
surrender, the Death Benefit or the death of the Owner of a Nonqualified
Policy generally will occur within seven business days from the date the
Written Notice (and any other required documentation or information) is
received, except that PFL may be permitted to defer such payment from the
Mutual Fund Account if: (1) the New York Stock Exchange is closed for other
than usual weekends or holidays or trading on the Exchange is otherwise
restricted; or (2) an emergency exists as defined by the SEC or the SEC
requires that trading be restricted; or (3) the SEC permits a delay for the
protection of Owners. In addition, transfers of amounts from the Subaccounts
may be deferred under these circumstances.
- 3 -
<PAGE>
Certain delays and restrictions apply to transfers of amounts out of the
Fixed Account. See page 28 of the Policy Prospectus.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Annuitant has been misstated, PFL will change the
annuity benefit payable to that which the Premium Payments would have
purchased for the correct age or sex. The dollar amount of any underpayment
made by PFL shall be paid in full with the next payment due such person or the
Beneficiary. The dollar amount of any overpayment made by PFL due to any
misstatement shall be deducted from payments subsequently accruing to such
person or Beneficiary. Any underpayment or overpayment will include interest
at 5% per year, from the date of the wrong payment to the date of the
adjustment. The age of the Annuitant may be established at any time by the
submission of proof satisfactory to PFL.
REALLOCATION OF ANNUITY PURCHASE VALUES AFTER THE ANNUITY COMMENCEMENT DATE
After the Annuity Commencement Date, the Policy Owner may reallocate the
value of a designated number of Annuity Units of a Subaccount of the Mutual
Fund Account then credited to a Policy into an equal value of Annuity Units of
one or more other Subaccounts of the Mutual Fund Account, or the Fixed
Account. The reallocation shall be based on the relative value of the Annuity
Units of the Account(s) or Subaccount(s) at the end of the Business Day on the
next payment date. The minimum amount which may be reallocated is the lesser
of (1) $10 of monthly income or (2) the entire monthly income of the Annuity
Units in the Account or Subaccount from which the transfer is being made. If
the monthly income of the Annuity Units remaining in an Account or Subaccount
after a reallocation is less than $10, PFL reserves the right to include the
value of those Annuity Units as part of the transfer. The request must be in
writing to PFL's Administrative and Service Office. There is no charge
assessed in connection with such reallocation. PFL reserves the right to limit
the number of times a reallocation of Annuity Purchase Value may be made in
any given Policy Year.
ASSIGNMENT
During the lifetime of the Annuitant the Policy Owner may assign any rights
or benefits provided by the Policy. An assignment will not be binding on PFL
until a copy has been filed at its Administrative and Service Office. The
rights and benefits of the Policy Owner and Beneficiary are subject to the
rights of the assignee. PFL assumes no responsibility for the validity or
effect of any assignment. Any claim made under an assignment shall be subject
to proof of interest and the extent of the assignment. An assignment may have
tax consequences.
Unless the Policy Owner so directs by filing written notice with PFL, no
Beneficiary may assign any payments under the Policy before they are due. To
the extent permitted by law, no payments will be subject to the claims of any
Beneficiary's creditors.
EVIDENCE OF SURVIVAL
PFL reserves the right to require satisfactory evidence that a person is
alive if a payment is based on that person being alive. No payment will be
made until PFL receives such evidence.
AMENDMENTS
No change in the Policy is valid unless made in writing by PFL and approved
by one of PFL's officers. No Registered Representative has authority to change
or waive any provision of the Policy.
PFL reserves the right to amend the Policies to meet the requirements of the
Code, regulations or published rulings. A Policy Owner can refuse such a
change by giving Written Notice, but a refusal may result in adverse tax
consequences.
- 4 -
<PAGE>
FEDERAL TAX MATTERS
TAX STATUS OF THE POLICY
Diversification Requirements. Section 817(h) of the Code provides that in
order for a variable contract which is based on a segregated asset account to
qualify as an annuity contract under the Code, the investments made by such
account must be "adequately diversified" in accordance with Treasury
regulations. The Treasury regulations issued under Section 817(h) (Treas. Reg.
(S) 1.817-5) apply a diversification requirement to each of the Subaccounts of
the Mutual Fund Account. The Mutual Fund Account, through the Underlying Funds
and their Portfolios, intends to comply with the diversification requirements
of the Treasury. PFL has entered into agreements regarding participation in
the Endeavor Series Trust and WRL Series Fund, Inc. that require the
Underlying Funds and their Portfolios to be operated in compliance with the
Treasury regulations.
Owner Control. In connection with the issuance of temporary regulations on
diversification requirements, the Treasury also announced that such
regulations do not provide guidance concerning the extent to which Owners may
direct their investments to the Subaccounts of the Mutual Fund Account. It is
not clear whether additional guidance in this regard will be provided nor
whether, if provided, it will be prospective only. It is possible that any
such guidance could treat an Owner as the owner of the assets of the Mutual
Fund Account if a Subaccount is too narrow in its investment strategy (e.g., a
fund that invests only in gold or stock of gold mining companies) or if Owners
have too many subaccount options to select, even though it technically meets
the diversification requirements. It is possible that if any guidance is
provided then the Mutual Fund Account may not be in compliance. PFL can
provide no assurances that any such guidance will not adversely affect the tax
treatment of existing Policies. For these reasons, PFL reserves the right to
modify the Policy as necessary to prevent the Owner from being considered the
owner of the assets of the Mutual Fund Account or otherwise to qualify the
Policy for favorable tax treatment.
Distribution Requirements. The Code also requires that Nonqualified Policies
contain specific provisions for distribution of Policy proceeds upon the death
of the Owner. In order to be treated as an annuity contract for federal income
tax purposes, the Code requires that such Policies provide that if any Owner
dies on or after the Annuity Commencement Date and before the entire interest
in the Policy has been distributed, the remaining portion must be distributed
at least as rapidly as under the method in effect on such Owner's death. If
any Owner dies before the Annuity Commencement Date, the entire interest in
the Policy must generally be distributed within 5 years after such Owner's
date of death or be used to purchase an immediate annuity under which payments
will begin within one year of such Owner's death and will be made for the life
of the Beneficiary or for a period not extending beyond the life expectancy of
the Beneficiary. However, if upon such Owner's death prior to the Annuity
Commencement Death, such Owner's surviving spouse becomes the sole new Owner
under the Policy, then the Policy may be continued with the surviving spouse
as the new Owner. If any Owner is not a natural person, then for purposes of
these distribution requirements, the primary Annuitant shall be treated as the
Owner and any death or change of such primary Annuitant shall be treated as
the Death of the Owner. The Policy contains provisions intended to comply with
these requirements of the Code. No regulations interpreting these requirements
of the Code have yet been issued and thus no assurance can be given that the
provisions contained in the Policies satisfy all such Code requirements. The
provisions contained in the Policies will be reviewed and modified if
necessary to assure that they comply with the Code requirements when clarified
by regulation or otherwise.
TAXATION OF PFL
PFL at present is taxed as a life insurance company under part I of
Subchapter L of the Code. The Mutual Fund Account is treated as part of PFL
and, accordingly, will not be taxed separately as a "regulated investment
company" under Subchapter M of the Code. PFL does not expect to incur any
federal income tax liability with respect to investment income and net capital
gains
- 5 -
<PAGE>
arising from the activities of the Mutual Fund Account retained as part of the
reserves under the Policy. Based on this expectation, it is anticipated that
no charges will be made against the Mutual Fund Account for federal income
taxes. If, in future years, any federal income taxes are incurred by PFL with
respect to the Mutual Fund Account, PFL may make a charge to the Mutual Fund
Account.
INVESTMENT EXPERIENCE
An "Investment Experience Factor" is used to determine the value of
Accumulation Units and Annuity Units, and to determine annuity payment rates.
ACCUMULATION UNITS
Upon allocation to the selected Subaccount of the Mutual Fund Account,
Premium Payments are converted into Accumulation Units of the Subaccount. The
number of Accumulation Units to be credited is determined by dividing the
dollar amount allocated to each Subaccount by the value of an Accumulation
Unit for that Subaccount as next determined after the Premium Payment is
received at the Administrative and Service Office or, in the case of the
initial Premium Payment, when the Policy application is completed, whichever
is later. The value of an Accumulation Unit was arbitrarily established at $1
(except the WRL Growth Subaccount which was established at $10) at the
inception of each Subaccount. Thereafter, the value of an Accumulation Unit is
determined as of the close of trading on each day the New York Stock Exchange
and PFL's Administrative and Service Office are open for business.
An index (the "Investment Experience Factor") which measures the investment
performance of a Subaccount during a Valuation Period is used to determine the
value of an Accumulation Unit for the next subsequent Valuation Period. The
Investment Experience Factor may be greater or less than or equal to one;
therefore, the value of an Accumulation Unit may increase, decrease or remain
the same from one Valuation Period to the next. The Policy Owner bears this
investment risk. The Net Investment Performance of a Subaccount and deduction
of certain charges affect the Accumulation Unit Value.
The Investment Experience Factor for any Subaccount for any Valuation Period
is determined by dividing (a) by (b) and subtracting (c) from the result,
where:
(a) is the net result of:
(1) the net asset value per share of the shares held in the
Subaccount determined at the end of the current Valuation Period, plus
(2) The per share amount of any dividend or capital gain distribution
made with respect to the shares held in the Subaccount if the ex-
dividend date occurs during the current Valuation Period, plus or minus
(3) a per share charge or credit for any taxes determined by PFL to
have resulted from the investment operations of the Subaccount and for
which it has created a reserve;
(b) is the net result of:
(1) the net asset value per share of the shares held in the
Subaccount determined as of the end of the immediately preceding
Valuation Period, plus or minus
(2) the per share charge or credit for taxes pertaining to the
immediately preceding Valuation Period for which PFL has created a
reserve; and
(c) is the charge for mortality and expense risk during the Valuation
Period equal on an annual basis to 1.25% of the daily net asset value of
the Subaccount, plus the .15% administrative charge.
- 6 -
<PAGE>
ILLUSTRATION OF ACCUMULATION UNIT VALUE CALCULATIONS
FORMULA AND ILLUSTRATION FOR DETERMINING THE INVESTMENT EXPERIENCE FACTOR
Investment Experience Factor = A + B - C - F
---------
D - E
Where: A = The Net Asset Value of an Underlying Fund share as of the end of
the current Valuation Period.
Assume...................A = $11.57
B = The per share amount of any dividend or capital gains distribution
since the end of the immediately preceding Valuation Period.
Assume...............................................B = 0
C = The per share charge or credit for any taxes reserved for at the
end of the current Valuation Period.
Assume..............C = 0
D = The Net Asset Value of an Underlying Fund share at the end of the
immediately preceding Valuation Period.
Assume.........D = $11.40
E = The per share amount of any taxes reserved for at the end of the
immediately preceding Valuation Period.
Assume..............E = 0
F = The daily deduction for mortality and expense risk and
administrative charges, which totals 1.40% on an annual basis.
On a daily basis..... = .0000380909
Then, the Investment Experience Factor
= 11.57 - 0 - 0 - .0000380909 = Z = 1.0148741898
-------------
11.40 - 0
FORMULA AND ILLUSTRATION FOR DETERMINING ACCUMULATION UNIT VALUE
Accumulation Unit Value = A X B
Where: A = The Accumulation Unit Value for the immediately preceding
Valuation Period.
Assume....................... = $ X
B = The Net Investment Factor for the current Valuation Period.
Assume......................... = Y
Then, the Accumulation Unit Value = $ X x Y = $ Z
ANNUITY UNIT VALUE AND ANNUITY PAYMENT RATES
The amount of Variable Annuity Payments will vary with Annuity Unit Values.
Annuity Unit Values rise if the net investment performance of the Subaccount
exceeds the assumed interest rate of 5% annually. Conversely, Annuity Unit
Values fall if the net investment performance of the Subaccount is less than
the assumed rate. The value of a variable Annuity Unit in each Subaccount
- 7 -
<PAGE>
was established at $1.00 on the date operations began for that Subaccount. The
value of a variable Annuity Unit on any subsequent Business Day is equal to
(a) multiplied by (b) multiplied by (c), where:
(a) is the variable Annuity Unit Value on the immediately preceding
Business Day;
(b) is the net investment factor of the valuation period; and
(c) is the investment result adjustment factor for the valuation period.
The investment result adjustment factor for the valuation period is the
product of discount factors of .99986634 per day to recognize the 5% effective
annual Assumed Investment Return. The valuation period is the period from the
close of the immediately preceding Business Day to the close of the current
Business Day.
The net investment factor for the Policy used to calculate the value of a
variable Annuity Unit in each Subaccount for the valuation period is
determined by dividing (i) by (ii) and subtracting (iii) from the result,
where:
(i) is the result of:
(1) the net asset value of a fund share held in the Mutual Fund
Account for that Subaccount determined at the end of the current
valuation period; plus
(2) the per share amount of any dividend or capital gain
distributions made by the fund for shares held in the Mutual Fund
Account for that Subaccount if the ex-dividend date occurs during the
valuation period.
(ii) is the net asset value of a fund share held in the Mutual Fund
Account for that Subaccount determined as of the end of the immediately
preceding valuation period.
(iii) is a factor representing the mortality and expense risk fee and
administrative charge. This factor is equal, on an annual basis, to 1.40%
of the daily net asset value of a fund share held in the Mutual Fund
Account for that Subaccount.
The dollar amount of subsequent Variable Annuity Payments will depend upon
changes in applicable Annuity Unit Values.
The annuity payment rates vary according to the Annuity Option elected and
the sex and adjusted age of the Annuitant at the Annuity Commencement Date.
The Policy also contains a table for determining the adjusted age of the
Annuitant.
ILLUSTRATION OF CALCULATIONS FOR ANNUITY UNIT VALUE
AND VARIABLE ANNUITY PAYMENTS
FORMULA AND ILLUSTRATION FOR DETERMINING ANNUITY UNIT VALUE
Annuity Unit Value = A x B x C
Where: A = Annuity Unit Value for the immediately preceding Valuation Period.
Assume.............. = $ X
B = Investment Experience Factor for the Valuation Period for which
the Annuity Unit Value is being calculated.
Assume................ = Y
C = A factor to neutralize the assumed interest rate of 5% built into
the Annuity Tables used.
Assume................ = Z
Then, the Annuity Unit Value is:
$ X x Y x Z = $ Q
- 8 -
<PAGE>
FORMULA AND ILLUSTRATION FOR DETERMINING AMOUNT OF FIRST MONTHLY VARIABLE
ANNUITY PAYMENT
First Monthly Variable Annuity Payment = A X B
------
$1,000
Where: A =
The Annuity Purchase Value as of the Annuity Commencement Date.
Assume............. = $ X
B = The Annuity purchase rate per $1,000 based upon the option
selected, the sex and adjusted age of the Annuitant according to
the tables contained in the Policy.
Assume............. = $ Y
Then, the first Monthly Variable Annuity
Payment = $ X x $ Y = $ Z
-----
1,000
FORMULA AND ILLUSTRATION FOR DETERMINING THE NUMBER OF ANNUITY
UNITS REPRESENTED BY EACH MONTHLY VARIABLE ANNUITY PAYMENT
Number of Annuity Units = A
-
B
Where: A = The dollar amount of the first monthly Variable Annuity Payment.
Assume............. = $ X
B = The Annuity Unit Value for the Valuation Date on which the first
monthly payment is
due. Assume.......... = $ Y
Then, the number of Annuity Units = $ X = Z
----
$ Y
STATE REGULATION OF PFL
PFL is subject to the laws of Iowa governing insurance companies and to
regulation by the Iowa Division of Insurance. An annual statement in a
prescribed form is filed with the Division of Insurance each year covering the
operation of PFL for the preceding year and its financial condition as of the
end of such year. Regulation by the Division of Insurance includes periodic
examination to determine PFL's contract liabilities and reserves so that the
Division may determine the items are correct. PFL's books and accounts are
subject to review by the Division of Insurance at all times and a full
examination of its operations is conducted periodically by the National
Association of Insurance Commissioners. In addition, PFL is subject to
regulation under the insurance laws of other jurisdictions in which it may
operate.
ADMINISTRATION
PFL performs administrative services for the Policies. These services
include issuance of the Policies, maintenance of records concerning the
Policies, and certain valuation services.
- 9 -
<PAGE>
RECORDS AND REPORTS
All records and accounts relating to the Mutual Fund Account will be
maintained by PFL. As presently required by the Investment Company Act of 1940
and regulations promulgated thereunder, PFL will mail to all Policy Owners at
their last known address of record, at least annually, reports containing such
information as may be required under that Act or by any other applicable law
or regulation. Policy Owners will also receive confirmation of each financial
transaction and any other reports required by law or regulation.
DISTRIBUTION OF THE POLICIES
The Policies are offered to the public through brokers licensed under the
federal securities laws and state insurance laws. The offering of the Policies
is continuous and PFL does not anticipate discontinuing the offering of the
Policies. However, PFL reserves the right to discontinue the offering of the
Policies.
AEGON USA Securities, Inc., an affiliate of PFL, will be the principal
underwriter of the Policies. AEGON USA Securities, Inc. has entered into
agreements with broker-dealers for the distribution of the Policies. During
1995, 1994 and 1993, the amount paid to AEGON USA Securities, Inc. and/or the
broker-dealers for their services was $13,569,474, $19,983,219 and
$16,173,142, respectively.
CUSTODY OF ASSETS
The assets of each of the Subaccounts of the Mutual Fund Account are held by
PFL. The assets of each of the Subaccounts of the Mutual Fund Account are
segregated and held separate and apart from the assets of the other
Subaccounts and from PFL's general account assets. PFL maintains records of
all purchases and redemptions of shares of the Underlying Funds held by each
of the Subaccounts. Additional protection for the assets of the Mutual Fund
Account is afforded by PFL's fidelity bond, presently in the amount of
$5,000,000, covering the acts of officers and employees of PFL.
HISTORICAL PERFORMANCE DATA
MONEY MARKET YIELDS
PFL may from time to time disclose the current annualized yield of the TCW
Money Market Subaccount, which invests in the TCW Money Market Portfolio, for
a 7-day period in a manner which does not take into consideration any realized
or unrealized gains or losses on shares of the TCW Money Market Portfolio or
on its portfolio securities. This current annualized yield is computed by
determining the net change (exclusive of realized gains and losses on the sale
of securities and unrealized appreciation and depreciation) at the end of the
7-day period in the value of a hypothetical account having a balance of 1 unit
of the TCW Money Market Subaccount at the beginning of the 7-day period,
dividing such net change in account value by the value of the account at the
beginning of the period to determine the base period return, and annualizing
this quotient on a 365-day basis. The net change in account value reflects (i)
net income from the Portfolio attributable to the hypothetical account; and
(ii) charges and deductions imposed under a Policy that are attributable to
the hypothetical account. The charges and deductions include the per unit
charges for the hypothetical account for (i) the Administrative Charges; and
(ii) the
- 10 -
<PAGE>
Mortality and Expense Risk Charge. Current Yield will be calculated according
to the following formula:
Current Yield = ((NCS-ES)/UV) X (365/7)
Where:
NCS= The net change in the value of the Portfolio (exclusive of realized gains
and losses on the sale of securities and unrealized appreciation and
depreciation) for the 7-day period attributable to a hypothetical account
having a balance of 1 Subaccount unit.
ES= Per unit expenses of the Subaccount for the 7-day period.
UV= The unit value on the first day of the 7-day period.
Because of the charges and deductions imposed under a Policy, the yield for
the TCW Money Market Subaccount will be lower than the yield for the TCW Money
Market Portfolio. The yield calculations do not reflect the effect of any
premium taxes or Contingent Deferred Sales Charges that may be applicable to a
particular Policy. Contingent Deferred Sales Charges range from 7% to 0% of
the amount of premium withdrawn based on the Policy Year since payment of the
premium.
PFL may also disclose the effective yield of the TCW Money Market Subaccount
for the same 7-day period, determined on a compounded basis. The effective
yield is calculated by compounding the base period return according to the
following formula:
Effective Yield = (1 + ((NCS - ES) /UV))/365/7/ - 1
Where:
NCS= The net change in the value of the Portfolio (exclusive of realized gains
and losses on the sale of securities and unrealized appreciation and
depreciation) for the 7-day period attributable to a hypothetical account
having a balance of 1 Subaccount unit.
ES= Per unit expenses of the Subaccount for the 7-day period.
UV= The unit value on the first day of the 7-day period.
The yield on amounts held in the TCW Money Market Subaccount normally will
fluctuate on a daily basis. Therefore, the disclosed yield for any given past
period is not an indication or representation of future yields or rates of
return. The TCW Money Market Subaccount's actual yield is affected by changes
in interest rates on money market securities, average portfolio maturity of
the TCW Money Market Portfolio, the types and quality of portfolio securities
held by the TCW Money Market Portfolio and its operating expenses. For the
seven days ended December 31, 1995, the yield of the TCW Money Market
Subaccount was 2.98%, and the effective yield was 3.02%.
OTHER SUBACCOUNT YIELDS
PFL may from time to time advertise or disclose the current annualized yield
of one or more of the Subaccounts of the Mutual Fund Account (except the TCW
Money Market Subaccount) for 30-day periods. The annualized yield of a
Subaccount refers to income generated by the Subaccount over a specific 30-day
period. Because the yield is annualized, the yield generated by a Subaccount
during the 30-day period is assumed to be generated each 30-day period over a
12-month period. The yield is computed by: (i) dividing the net investment
income of the Subaccount less Subaccount expenses for the period, by (ii) the
maximum offering price per unit on the last day of the period times the daily
average number of units outstanding for the period,
- 11 -
<PAGE>
(iii) compounding that yield for a 6-month period, and (iv) multiplying that
result by 2. Expenses attributable to the Subaccount include (i) the
Administrative Charge and (ii) the Mortality and Expense Risk Charge. The 30-
day yield is calculated according to the following formula:
Yield = 2 X ((((NI - ES)/(U X UV)) + 1)/6/ - 1)
Where:
<TABLE>
<C> <S>
NI= Net investment income of the Subaccount for the 30-day period attributable
to the Subaccount's unit.
ES= Expenses of the Subaccount for the 30-day period.
U= The average number of units outstanding.
The unit value at the close (highest) of the last day in the 30-day
UV= period.
</TABLE>
Because of the charges and deductions imposed by the Mutual Fund Account,
the yield for a Subaccount of the Mutual Fund Account will be lower than the
yield for its corresponding Portfolio. The yield calculations do not reflect
the effect of any premium taxes that may be applicable to a particular Policy.
Contingent Deferred Sales Charges range from 7% to 0% of the amount of premium
withdrawn based on the Policy Year since payment of the premium.
The yield on amounts held in the Subaccounts of the Mutual Fund Account
normally will fluctuate over time. Therefore, the disclosed yield for any
given past period is not an indication or representation of future yields or
rates of return. A Subaccount's actual yield is affected by the types and
quality of its investments and its operating expenses.
TOTAL RETURNS
PFL may from time to time also advertise or disclose total returns for one
or more of the Subaccounts of the Mutual Fund Account for various periods of
time. One of the periods of time will include the period measured from the
date the Subaccount commenced operations. When a Subaccount has been in
operation for 1, 5 and 10 years, respectively, the total return for these
periods will be provided. Total returns for other periods of time may from
time to time also be disclosed. Total returns represent the average annual
compounded rates of return that would equate an initial investment of $1,000
to the redemption value of that investment as of the last day of each of the
periods. The ending date for each period for which total return quotations are
provided will be for the most recent month end practicable, considering the
type and media of the communication and will be stated in the communication.
Total returns will be calculated using Subaccount Unit Values which PFL
calculates on each Business Day based on the performance of the Subaccount's
underlying Portfolio, and the deductions for the Mortality and Expense Risk
Charge and the Administrative Charges. Total return calculations will reflect
the effect of Contingent Deferred Sales Charges that may be applicable to a
particular period. The total return will then be calculated according to the
following formula:
P(1 + T)/n/ = ERV
Where:
<TABLE>
<C> <S>
T= The average annual total return net of Subaccount recurring charges.
The ending redeemable value of the hypothetical account at the end of the
ERV= period.
P= A hypothetical initial payment of $1,000.
N= The number of years in the period.
</TABLE>
- 12 -
<PAGE>
OTHER PERFORMANCE DATA
PFL may from time to time also disclose average annual total returns in a
non-standard format in conjunction with the standard format described above.
The non-standard format will be identical to the standard format except that
the Contingent Deferred Sales Charge percentage will be assumed to be 0%.
PFL may from time to time also disclose cumulative total returns in
conjunction with the standard format described above. The cumulative returns
will be calculated using the following formula assuming that the Contingent
Deferred Sales Charge percentage will be 0%.
CTR = (ERV / P) - 1
Where:
<TABLE>
<C> <S>
The cumulative total return net of Subaccount recurring charges for the
CTR= period.
The ending redeemable value of the hypothetical investment at the end of
ERV= the period.
P= A hypothetical initial payment of $1,000.
</TABLE>
All non-standard performance data will only be advertised if the standard
performance data for the same period, as well as for the required period, is
also disclosed.
LEGAL MATTERS
Legal advice relating to certain matters under the federal securities laws
applicable to the issue and sale of the Policies has been provided to PFL by
Sutherland, Asbill & Brennan, of Washington D.C.
INDEPENDENT AUDITORS
The Financial Statements of PFL as of December 31, 1995 and 1994, and for
each of the three years in the period ended December 31, 1995, and the
Financial Statements of PFL Endeavor Variable Annuity Account (which comprises
a portion of the PFL Endeavor VA Separate Account) at December 31, 1995, and
for each of the two years in the period then ended, included in this Statement
of Additional Information have been audited by Ernst & Young LLP, Independent
Auditors, Des Moines, Iowa.
OTHER INFORMATION
A Registration Statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933 as amended, with respect to the
Policies discussed in this Statement of Additional Information. Not all of the
information set forth in the Registration Statement, amendments and exhibits
thereto has been included in the Prospectus or this Statement of Additional
Information. Statements contained in the Prospectus and this Statement of
Additional Information concerning the content of the Policies and other legal
instruments are intended to be summaries. For a complete statement of the
terms of these documents, reference should be made to the instruments filed
with the Securities and Exchange Commission.
- 13 -
<PAGE>
FINANCIAL STATEMENTS
The values of the interest of Policy Owners in the Mutual Fund Account will
be affected solely by the investment results of the selected Subaccount(s).
Financial Statements of PFL Endeavor Variable Annuity Account (which comprises
a portion of the PFL Endeavor VA Separate Account) are contained herein. The
Financial Statements of PFL, which are included in this Statement of
Additional Information, should be considered only as bearing on the ability of
PFL to meet its obligations under the Policies. They should not be considered
as bearing on the investment performance of the assets held in the Mutual Fund
Account.
- 14 -
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors PFL Life Insurance Company
We have audited the accompanying statutory-basis balance sheets of PFL Life
Insurance Company as of December 31, 1995 and 1994, and the related statutory-
basis statements of operations, changes in capital and surplus and cash flows
for each of the three years in the period ended December 31, 1995. Our audits
also included the statutory-basis financial statement schedules required by
Regulation S-X, Article 7. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
The Company presents its financial statements in conformity with the
accounting practices prescribed or permitted by the Insurance Division,
Department of Commerce, of the State of Iowa. The variances between such
practices and generally accepted accounting principles are described in Note
1. The effects of these variances have not been determined but we believe they
are material.
In our opinion, because of the materiality of the effects of the variances
between generally accepted accounting principles and the accounting practices
referred to in the preceding paragraph, the financial statements referred to
above are not intended to and do not present fairly, in conformity with
generally accepted accounting principles, the financial position of PFL Life
Insurance Company at December 31, 1995 and 1994, or the results of its
operations or its cash flows for each of the three years in the period ended
December 31, 1995.
In addition, in our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of PFL Life
Insurance Company at December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995 in conformity with accounting practices prescribed or
permitted by the Insurance Division, Department of Commerce, of the State of
Iowa. Also, in our opinion, the related statutory-basis financial statement
schedules, when considered in relation to the basic statutory-basis financial
statements taken as a whole, present fairly in all material respects
information set forth therein.
Ernst & Young, LLP
Des Moines, IowaFebruary 23, 1996
- 15 -
<PAGE>
PFL LIFE INSURANCE COMPANY
BALANCE SHEETS--STATUTORY BASIS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1995 1994
---------- ----------
<S> <C> <C>
ADMITTED ASSETS
Cash and invested assets:
Cash and short-term investments........................ $ 79,852 $ 34,062
Bonds.................................................. 4,613,334 4,094,407
Stocks:
Preferred............................................ 9,336 12,667
Common (cost: 1995--$19,061; 1994--$15,812).......... 24,866 16,754
Affiliated entities (cost: 1995--$14,661; 1994--
$13,155)............................................ 6,794 26,530
Mortgage loans on real estate.......................... 680,414 527,410
Real estate, at cost less accumulated depreciation
($12,493 in 1995; $12,318 in 1994):
Home office properties............................... 20,403 21,226
Properties acquired in satisfaction of debt.......... 2,648 10,381
Investment properties................................ 40,453 45,859
Policy loans........................................... 52,675 51,798
Other invested assets.................................. 5,586 4,593
---------- ----------
Total cash and invested assets......................... 5,536,361 4,845,687
Premiums deferred and uncollected........................ 17,026 18,386
Accrued investment income................................ 68,065 61,969
Receivable from affiliates............................... 79,913 31,843
Federal income taxes recoverable......................... 9,776 10,274
Other assets............................................. 40,774 29,441
Separate account assets.................................. 1,418,157 1,120,391
---------- ----------
Total admitted assets.................................. $7,170,072 $6,117,991
========== ==========
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate reserves for policies and contracts:
Life................................................. $ 596,039 $ 545,870
Annuity.............................................. 4,220,274 3,693,388
Accident and health.................................. 114,884 99,240
Policy and contract claim reserves:
Life................................................. 6,225 7,493
Accident and health.................................. 70,517 66,407
Other policyholders' funds............................. 105,371 87,574
Remittances and items not allocated.................... 123,710 35,415
Asset valuation reserve................................ 43,921 37,975
Interest maintenance reserve........................... 26,376 22,826
Other liabilities...................................... 67,070 73,071
Separate account liabilities........................... 1,418,157 1,120,391
---------- ----------
Total liabilities...................................... 6,792,544 5,789,650
Commitments and contingencies
Capital and surplus:
Common stock, $10 par value, 500 shares authorized, 266
issued and outstanding................................ 2,660 2,660
Paid-in surplus........................................ 154,129 114,129
Unassigned surplus..................................... 220,739 211,552
---------- ----------
Total capital and surplus.............................. 377,528 328,341
---------- ----------
Total liabilities and capital and surplus.............. $7,170,072 $6,117,991
========== ==========
</TABLE>
See accompanying notes.
- 16 -
<PAGE>
PFL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS--STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Premiums and other considerations, net of
reinsurance:
Life................................... $ 114,704 $ 148,954 $ 98,670
Annuity................................ 921,452 1,067,406 740,787
Accident and health.................... 232,738 230,889 266,789
Net investment income.................... 392,685 343,880 322,393
Amortization of interest maintenance
reserve................................. 4,341 2,871 2,674
Commissions and expense allowances on
reinsurance ceded....................... 77,071 94,635 62,584
---------- ---------- ----------
1,742,991 1,888,635 1,493,897
Benefits and expenses:
Benefits paid or provided for:
Life and accident and health benefits.. 146,346 141,632 162,308
Surrender benefits..................... 498,626 392,064 217,998
Other benefits......................... 88,607 73,306 50,195
Increase in aggregate reserves for
policies and contracts:
Life................................. 50,071 82,062 26,703
Annuity.............................. 528,330 569,341 250,241
Accident and health.................. 17,694 22,144 19,216
Other................................ 16,017 11,223 4,352
---------- ---------- ----------
1,345,691 1,291,772 731,013
Insurance expenses:
Commissions............................ 200,706 215,635 198,251
General insurance expenses............. 57,623 52,166 53,367
Taxes, licenses and fees............... 15,700 15,368 10,781
Transfer to separate account........... 42,981 243,806 414,819
Other expenses......................... 760 1,014 814
---------- ---------- ----------
317,770 527,989 678,032
---------- ---------- ----------
1,663,461 1,819,761 1,409,045
---------- ---------- ----------
Gain from operations before federal income
taxes and net realized capital losses on
investments............................... 79,530 68,874 84,852
Federal income tax expense................. 33,335 23,858 31,667
---------- ---------- ----------
Gain from operations before net realized
capital losses on investments............. 46,195 45,016 53,185
Net realized capital losses on investments
(net of related federal income taxes and
transfer to interest maintenance reserve). (18,096) (3,624) (451)
---------- ---------- ----------
Net income................................. $ 28,099 $ 41,392 $ 52,734
========== ========== ==========
</TABLE>
See accompanying notes.
- 17 -
<PAGE>
PFL LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS--STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN UNASSIGNED CAPITAL AND
STOCK CAPITAL SURPLUS SURPLUS
------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
Balance at January 1, 1993............ $2,660 $ 99,129 $213,665 $315,454
Net income for 1993................. -- -- 52,734 52,734
Net unrealized capital gains........ -- -- 1,719 1,719
Increase in non-admitted assets..... -- -- (5) (5)
Increase in asset valuation reserve. -- -- (10,773) (10,773)
Dividend to stockholder............. -- -- (46,000) (46,000)
Surplus effect of sale of division.. -- -- (862) (862)
Cancellation of coinsurance
agreement.......................... -- -- (288) (288)
Decrease in liability for
reinsurance in unauthorized
companies.......................... -- -- 2,340 2,340
Prior period adjustment............. -- -- 452 452
------ -------- -------- --------
Balance at December 31, 1993.......... 2,660 99,129 212,982 314,771
Capital contribution................ -- 15,000 -- 15,000
Net income for 1994................. -- -- 41,392 41,392
Net unrealized capital losses....... -- -- (25,350) (25,350)
Increase in non-admitted assets..... -- -- (248) (248)
Decrease in asset valuation reserve. -- -- 6,040 6,040
Dividend to stockholder............. -- -- (20,900) (20,900)
Surplus effect of ceding commissions
associated with the sale of a
division........................... -- -- 184 184
Amendment of reinsurance agreement.. -- -- 391 391
Decrease in liability for
reinsurance in unauthorized
companies.......................... -- -- 505 505
Prior period adjustment............. -- -- (3,444) (3,444)
------ -------- -------- --------
Balance at December 31, 1994.......... 2,660 114,129 211,552 328,341
Capital contribution................ -- 40,000 -- 40,000
Net income for 1995................. -- -- 28,099 28,099
Net unrealized capital losses....... -- -- (7,574) (7,574)
Decrease in non-admitted assets..... -- -- 50 50
Increase in asset valuation reserve. -- -- (5,946) (5,946)
Surplus effect of ceding commissions
associated with the sale of a
division........................... -- -- 35 35
Cancellation of reinsurance
agreement.......................... -- -- 585 585
Amendment of reinsurance agreement.. -- -- 419 419
Dividend of subsidiary to
stockholder........................ -- -- (3,250) (3,250)
Change in reserve valuation
methodology........................ -- -- (501) (501)
Increase in liability for
reinsurance in unauthorized
companies.......................... -- -- (2,730) (2,730)
------ -------- -------- --------
Balance at December 31, 1995.......... $2,660 $154,129 $220,739 $377,528
====== ======== ======== ========
</TABLE>
See accompanying notes.
- 18 -
<PAGE>
PFL LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS--STATUTORY BASIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
SOURCES OF CASH
Premiums and other considerations, net of
reinsurance............................... $1,348,559 $1,547,797 $1,169,096
Net investment income...................... 398,051 339,856 326,480
---------- ---------- ----------
1,746,610 1,887,653 1,495,576
Life and accident and health claims........ (140,798) (137,602) (159,968)
Surrender benefits and other fund withdraw-
als....................................... (498,626) (392,064) (217,998)
Other benefits to policyholders............ (88,519) (73,237) (50,180)
Commissions, other expenses and other tax-
es........................................ (273,397) (288,151) (264,124)
Net transfers to separate accounts......... (42,981) (243,806) (414,819)
Dividends to policyholders................. (940) (1,155) (1,200)
Federal income taxes, excluding tax on cap-
ital gains and IRS settlements............ (32,905) (39,864) (32,548)
Increase in policy loans................... (877) (3,202) (677)
Increase in remittances and items not allo-
cated..................................... 88,295 16,177 3,982
---------- ---------- ----------
Net cash provided by operations............ 755,862 724,749 358,044
Proceeds from investments sold, matured or
repaid:
Bonds and preferred stocks............... 1,757,229 1,430,339 1,532,807
Common stocks............................ 20,338 12,941 11,121
Mortgage loans on real estate............ 36,550 43,495 47,460
Real estate.............................. 23,203 9,536 8,286
Other proceeds........................... 381 189 1,407
---------- ---------- ----------
Total cash from investments................ 1,837,701 1,496,500 1,601,081
Capital contribution....................... 40,000 15,000 --
Cash received as the result of coinsurance
cancellations............................. -- -- 114
Dividend from subsidiary................... -- 10,000 --
Cash received from ceding commissions asso-
ciated with the sale of a division........ 55 284 --
Other sources.............................. 10,135 24,855 8,475
---------- ---------- ----------
Total sources of cash...................... 2,643,753 2,271,388 1,967,714
APPLICATIONS OF CASH
Cost of investments acquired:
Bonds and preferred stocks............... $2,294,195 $2,043,615 $1,846,839
Common stocks............................ 23,284 11,228 18,832
Mortgage loans on real estate............ 192,292 160,068 94,557
Real estate.............................. 10,188 14,801 8,587
Other invested assets.................... 2,670 664 347
---------- ---------- ----------
Total investments acquired................. 2,522,629 2,230,376 1,969,162
Dividends to stockholder................... -- 20,900 46,000
Cash transferred as the result of sale of
division.................................. -- -- 8,773
Issuance/(repayment) of intercompany notes
and receivables, net...................... 48,070 365 31,478
Other applications, net.................... 27,264 3,820 15,026
---------- ---------- ----------
Total applications of cash................. 2,597,963 2,255,461 2,070,439
---------- ---------- ----------
Net change in cash and short-term invest-
ments..................................... 45,790 15,927 (102,725)
Cash and short-term investments at begin-
ning of year.............................. 34,062 18,135 120,860
---------- ---------- ----------
Cash and short-term investments at end of
year...................................... $ 79,852 $ 34,062 $ 18,135
========== ========== ==========
</TABLE>
See accompanying notes.
- 19 -
<PAGE>
PFL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--STATUTORY BASIS
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
PFL Life Insurance Company ("the Company") is a stock life insurance company
and is a wholly-owned subsidiary of First AUSA Life Insurance Company ("First
AUSA"), which, in turn, is a wholly-owned subsidiary of AEGON USA, Inc.
("AEGON"). AEGON is a wholly-owned subsidiary of AEGON nv, a holding company
organized under the laws of The Netherlands. Effective June 1, 1995, the
Company declared a dividend to transfer the common stock of its wholly-owned
subsidiary, Equity National Life Insurance Company ("Equity National"), to its
stockholder, First AUSA. Equity National was then merged with Life Investors
Insurance Company of America, a subsidiary of First AUSA. The financial
statements presented herein are prepared on the statutory accounting
principles basis for the Company only; as such, the accounts of the Company's
subsidiary, Equity National, are not consolidated with those of the Company.
In connection with the sale of certain affiliated companies, the Company has
assumed various blocks of business from these former affiliates through
mergers. In addition, the Company has canceled or entered into several
coinsurance and reinsurance agreements with affiliates and non-affiliates. The
following is a description of those transactions:
. Effective December 31, 1995, the Company canceled a coinsurance
agreement with its parent, First AUSA. As a result of the
cancellation, the Company transferred $825 of assets and $1,712 of
liabilities. The difference between the assets and the liabilities,
net of a tax effect of $302 was credited directly to surplus.
. On January 1, 1994, the Company entered into a three-year agreement
with a non-affiliate reinsurer to reduce the reinsurance ceded by 2
1/2% each year (primarily group health business). As a result, the
Company transferred $3,881 in assets and $4,080 in liabilities during
1994. The difference between the assets and liabilities of $199, plus
a tax credit of $192, was credited directly to unassigned surplus.
During 1995, the Company transferred $4,303 in assets and liabilities
of $4,467. The difference between the assets and liabilities of $164,
plus a tax credit of $255, was credited directly to unassigned
surplus.
. During 1993, the Company sold the Oakbrook Division (primarily group
health business). The initial transfer of risk occurred through an
indemnity reinsurance agreement. The policies will then be assumed by
the reinsurer by novation as state regulatory and policyholder
approvals are received. In addition, the Company will receive from
the third party administrator a ceding commission of one percent of
the premiums collected between January 1, 1994 and December 31, 1996.
As a result of the sale, in 1993, the Company transferred $12,094 in
assets including $8,773 in cash and short-term investments and
$10,570 in liabilities to the assuming company. The difference
between the assets and liabilities transferred, net of a tax effect
of $662, was charged directly to unassigned surplus. The income
statement for 1993 includes revenues of $53,558 and net income of
$2,839 earned by the division prior to its sale. During 1994, the
Company received $284 for ceding commissions; the commissions net of
the related tax effect of $100 was credited directly to unassigned
surplus. During 1995, the Company received $55 for ceding
commissions; the commissions net of the related tax effect of $20 was
credited directly to unassigned surplus.
- 20 -
<PAGE>
. During 1993, the Company canceled several coinsurance agreements with
affiliated and non-affiliated companies. As a result of the
cancellations with affiliates, the Company received $1,006 in assets,
and $1,051 in liabilities. As a result of the cancellations with non-
affiliates, the Company received $6,736 in assets, including $114 in
cash and short-term investments, and $7,131 in liabilities. The
difference between the assets and liabilities, net of a tax effect of
$152, was charged directly to surplus.
Nature of Business
The Company sells individual non-participating whole life, endowment and
term contracts, as well as a broad line of single fixed and flexible premium
annuity products. In addition, the Company offers group life, universal life,
and individual and specialty health coverages. The Company is licensed in 49
states and the District of Columbia. Sales of the Company's products are
primarily through an independent insurance agency of the Company's Insurance
Center, the Company's agents, and financial institutions.
Basis of Presentation
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
Significant estimates and assumptions are utilized in the calculation of
aggregate policy reserves, policy and contract claim reserves, guaranty fund
assessment accruals and valuation allowances on investments. It is reasonably
possible that actual experience could differ from the estimates and
assumptions utilized which could have a material impact on the financial
statements.
The accompanying financial statements have been prepared on the basis of
accounting practices prescribed or permitted by the Insurance Division,
Department of Commerce, of the State of Iowa, which practices differ in some
respects from generally accepted accounting principles. The more significant
of these differences are as follows: (a) bonds are generally carried at
amortized cost rather than segregating the portfolio into held-to-maturity
(carried at amortized cost), available-for-sale (carried at fair value), and
trading (carried at fair value) classifications; (b) acquisition costs of
acquiring new business are charged to current operations as incurred rather
than deferred and amortized over the life of the policies; (c) policy reserves
on traditional life products are based on statutory mortality rates and
interest which may differ from reserves based on reasonable assumptions of
expected mortality, interest, and withdrawals which include a provision for
possible unfavorable deviation from such assumptions; (d) policy reserves on
certain investment products use discounting methodologies utilizing statutory
interest rates rather than full account values; (e) reinsurance amounts are
netted against the corresponding receivable or payable rather than shown as
gross amounts on the balance sheet; (f) deferred income taxes are not provided
for the difference between the financial statement and income tax bases of
assets and liabilities; (g) net realized gains or losses attributed to changes
in the level of interest rates in the market are deferred and amortized over
the remaining life of the bond or mortgage loan, rather than recognized as
gains or losses in the statement of operations when the sale is completed; (h)
declines in the estimated realizable value of investments are provided for
through the establishment of a formula-determined statutory investment reserve
(carried as a liability) changes to which are charged directly to surplus,
rather than through recognition in the statement of operations for declines in
value, when such declines are judged to be other than temporary; (i) certain
assets designated as "non-admitted assets" have been charged to surplus rather
than being reported as assets; (j) revenues for universal life and investment
products
- 21 -
<PAGE>
consist of premiums received rather than policy charges for the cost of
insurance, policy administration charges, amortization of policy initiation
fees and surrender charges assessed; (k) pension expense is recorded as
amounts are paid; (l) adjustments to federal income taxes of prior years are
charged or credited directly to unassigned surplus, rather than reported as a
component of expense in the statement of operations; (m) gains or losses on
dispositions of business are charged or credited directly to unassigned
surplus rather than being reported in the statement of operations; (n) a
liability is established for "unauthorized reinsurers" and changes in this
liability are charged or credited directly to unassigned surplus; and (o) the
financial statements of subsidiaries are not consolidated with those of the
Company. The effects of these variances have not been determined by the
Company.
The National Association of Insurance Commissioners (NAIC) currently is in
the process of recodifying statutory accounting practices, the result of which
is expected to constitute the only source of "prescribed" statutory accounting
practices. Accordingly, that project, which is expected to be completed in
1996, will likely change, to some extent, prescribed statutory accounting
practices and may result in changes to the accounting practices that the
Company uses to prepare its statutory-basis financial statements.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with remaining maturity of one year or less when
purchased to be cash equivalents.
Investments
Investments in bonds (except those to which the Securities Valuation Office
of the NAIC has ascribed a value), mortgage loans on real estate and short-
term investments are reported at cost adjusted for amortization of premiums
and accrual of discounts. Amortization is computed using methods which result
in a level yield over the expected life of the security. The Company reviews
its prepayment assumptions on mortgage and other asset backed securities at
regular intervals and adjusts amortization rates prospectively when such
assumptions are changed due to experience and/or expected future patterns.
Investments in preferred stocks in good standing are reported at cost.
Investments in preferred stocks not in good standing are reported at the lower
of cost or market. Common stocks of unaffiliated companies, which may include
shares of mutual funds (money market and other), are carried at market. Common
stock of the Company's insurance subsidiary is recorded at the equity in net
assets. Real estate is reported at cost less allowances for depreciation.
Depreciation is computed principally by the straight-line method. Policy loans
are reported at unpaid principal. Other invested assets consist principally of
investments in various joint ventures and are recorded at equity in underlying
net assets. Other "admitted assets" are valued, principally at cost, as
required or permitted by Iowa Insurance Laws.
Realized capital gains and losses are determined on the basis of specific
identification and are recorded net of related federal income taxes. The Asset
Valuation Reserve (AVR) is established by the Company to provide for
anticipated losses in the event of default by issuers of certain invested
assets. These amounts are determined using a formula prescribed by the NAIC
and are reported as a liability. The formula for the AVR provides for a
corresponding adjustment for realized gains and losses, net of amounts
attributed to changes in the general level of interest rates. Under a
- 22 -
<PAGE>
formula prescribed by the NAIC, the Company defers, in the Interest
Maintenance Reserve (IMR), the portion of realized gains and losses on sales
of fixed income investments, principally bonds and mortgage loans,
attributable to changes in the general level of interest rates and amortizes
those deferrals over the remaining period to maturity of the security.
Interest income is recognized on an accrual basis. The Company does not
accrue income on bonds in default, mortgage loans on real estate in default
and/or foreclosure or which are delinquent more than twelve months, or real
estate where rent is in arrears for more than three months. Further, income is
not accrued when collection is uncertain. At December 31, 1995, 1994 and 1993,
the Company excluded investment income due and accrued of $2,272, $4,622 and
$1,876, respectively, with respect to such practices.
The Company entered into an interest-rate cap agreement on Five Year
Constant Maturities Treasury futures to hedge the exposure of increasing
interest rates. The cash flows from the interest rate cap will help offset
losses that might occur from disintermediation resulting from a rise in
interest rates. The Company paid a one-time premium to receive the difference
between the reference rate and the strike rate after a two-year delay. The
cost is included in interest expense ratably during the life of the agreement.
Income received as a result of the cap agreement will be recognized in
investment income as earned. Unamortized cost of the agreements is included in
other assets.
Aggregate Policy Reserves
Life, annuity and accident and health benefit reserves are developed by
actuarial methods and are determined based on published tables using
statutorily specified interest rates and valuation methods that will provide,
in the aggregate, reserves that are greater than or equal to the minimum
required by law.
The aggregate policy reserves for life insurance policies are based
principally upon the 1941, 1958, and 1980 Commissioners' Standard Ordinary
Mortality and American Experience Mortality Tables. The reserves are
calculated using interest rates ranging from 2.00 to 6.00 percent and are
computed principally on the Net Level Valuation and the Commissioners' Reserve
Valuation Methods. Reserves for universal life policies are based on account
balances adjusted for the Commissioners' Reserve Valuation Method.
Deferred annuity reserves are calculated according to the Commissioners'
Annuity Reserve Valuation Method including excess interest reserves to cover
situations where the future interest guarantees plus the decrease in surrender
charges are in excess of the maximum valuation rates of interest. Reserves for
immediate annuities and supplementary contracts with and without life
contingencies are equal to the present value of future payments assuming
interest rates ranging from 2.50 to 11.25 percent and mortality rates, where
appropriate, from a variety of tables.
Accident and health policy reserves are equal to the greater of the gross
unearned premiums or any required midterminal reserves plus net unearned
premiums and the present value of amounts not yet due on both reported and
unreported claims.
Policy and Contract Claim Reserves
Claim reserves represent the estimated accrued liability for claims reported
to the Company and claims incurred but not yet reported through the statement
date. These reserves are estimated using either individual case-basis
valuations or statistical analysis techniques. These estimates are subject to
the effects of trends in claim severity and frequency. The estimates are
continually reviewed and adjusted as necessary as experience develops or new
information becomes available.
- 23 -
<PAGE>
Separate Account
Assets held in trust for purchases of variable annuity contracts and the
Company's corresponding obligation to the contract owners are shown separately
in the balance sheets. The assets in the separate account are valued at
market. Income and gains and losses with respect to the assets in the separate
account accrue to the benefit of the policyholders. The Company received
variable contract premiums of $133,386, $308,305 and $439,586 in 1995, 1994
and 1993, respectively. All variable account contracts are subject to
discretionary withdrawal by the policyholder at the market value of the
underlying assets less the current surrender charge.
Reclassifications
Certain reclassifications have been made to the 1994 and 1993 financial
statements to conform to the 1995 presentation.
2. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments", requires disclosure of fair value information
about financial instruments, whether or not recognized in the statutory-basis
balance sheet, for which it is practicable to estimate that value. SFAS No.
119, "Disclosures about Derivative Financial Instruments and Fair Value of
Financial Instruments" requires additional disclosure about derivatives. In
cases where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount
rate and estimates of future cash flows. In that regard, the derived fair
value estimates cannot be substantiated by comparisons to independent markets
and, in many cases, could not be realized in immediate settlement of the
instrument. Statement of Financial Accounting Standards No. 107 and No. 119
exclude certain financial instruments and all nonfinancial instruments from
their disclosure requirements and allow companies to forego the disclosures
when those estimates can only be made at excessive cost. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value
of the Company.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and cash equivalents, short-term investments: The carrying amounts
reported in the balance sheet for these instruments approximate their fair
values.
Investment securities: Fair values for fixed maturity securities
(including redeemable preferred stocks) are based on quoted market prices,
where available. For fixed maturity securities not actively traded, fair
values are estimated using values obtained from independent pricing
services or, in the case of private placements, are estimated by
discounting expected future cash flows using a current market rate
applicable to the yield, credit quality, and maturity of the investments.
The fair values for equity securities other than insurance subsidiaries are
based on quoted market prices and are recognized in the balance sheet. Fair
value for the Company's insurance subsidiary is the statutory net book
value of that subsidiary.
Mortgage loans and policy loans: The fair values for mortgage loans are
estimated utilizing discounted cash flow analyses, using interest rates
reflective of current market conditions and the risk characteristics of the
loans. The fair value of policy loans are assumed to equal their carrying
value.
Investment contracts: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash
flow calculations, based on interest
- 24 -
<PAGE>
rates currently being offered for similar contracts with maturities
consistent with those remaining for the contracts being valued.
Interest rate cap: Estimated fair value of the interest rate cap is based
upon the latest quoted market price.
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure
to changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
The following sets forth a comparison of the fair values and carrying values
of the Company's financial instruments subject to the provisions of Statement
of Financial Accounting Standards No. 107 and No. 119:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------------
1995 1994
--------------------- ---------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ADMITTED ASSETS
Bonds........................... $4,613,334 $4,824,635 $4,094,407 $3,952,849
Preferred stocks................ 9,336 12,275 12,667 12,905
Common stocks................... 24,866 24,866 16,754 16,754
Affiliated common and preferred
stock.......................... 6,794 6,794 26,530 26,530
Mortgage loans on real estate... 680,414 714,399 527,410 499,350
Policy loans.................... 52,675 52,675 51,798 51,798
Cash and short-term investments. 79,852 79,852 34,062 34,062
Interest rate cap............... 7,971 7,250 -- --
Separate account assets......... 1,418,157 1,418,157 1,120,391 1,120,391
LIABILITIES
Investment contract liabilities. 4,323,188 4,310,505 3,779,199 3,468,226
Separate account annuities...... 1,417,842 1,417,842 1,119,002 1,119,002
</TABLE>
3. INVESTMENTS
The carrying value and estimated fair value of investments in debt
securities were as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1995
Bonds:
United States Government and
agencies..................... $ 117,054 $ 5,808 $ 135 $ 122,727
State, municipal and other
government................... 46,236 3,109 2 49,343
Public utilities.............. 156,342 9,578 1,092 164,828
Industrial and miscellaneous.. 1,781,149 112,074 7,146 1,886,077
Mortgage-backed securities.... 2,512,553 93,420 4,313 2,601,660
---------- -------- ------- ----------
4,613,334 223,989 12,688 4,824,635
Preferred stocks................ 9,336 3,348 409 12,275
---------- -------- ------- ----------
$4,622,670 $227,337 $13,097 $4,836,910
========== ======== ======= ==========
</TABLE>
- 25 -
<PAGE>
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1994
Bonds:
United States Government and
agencies..................... $ 104,798 $ 395 $ 1,958 $ 103,235
State, municipal and other
government................... 51,650 390 2,739 49,301
Public utilities.............. 164,975 1,860 5,710 161,125
Industrial and miscellaneous.. 1,891,899 27,082 69,137 1,849,844
Mortgage-backed securities.... 1,881,085 9,074 100,815 1,789,344
---------- ------- -------- ----------
4,094,407 38,801 180,359 3,952,849
Preferred stocks................ 12,667 778 540 12,905
---------- ------- -------- ----------
$4,107,074 $39,579 $180,899 $3,965,754
========== ======= ======== ==========
</TABLE>
The carrying value and estimated fair value of bonds at December 31, 1995,
by contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
ESTIMATED
CARRYING FAIR
VALUE VALUE
---------- ----------
<S> <C> <C>
Due in one year or less............................... $ 104,697 $ 105,157
Due after one year through five years................. 858,586 889,832
Due after five years through ten years................ 934,627 995,403
Due after ten years................................... 202,871 232,583
---------- ----------
2,100,781 2,222,975
Mortgage and other asset-backed securities............ 2,512,553 2,601,660
---------- ----------
$4,613,334 $4,824,635
========== ==========
</TABLE>
A detail of net investment income is presented below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Interest on bonds and notes...................... $342,182 $294,145 $286,013
Dividends on equity investments.................. 1,822 12,091 3,990
Interest on mortgage loans....................... 52,702 42,385 37,587
Rental income on real estate..................... 10,443 9,360 8,753
Interest on policy loans......................... 3,112 3,182 2,943
Other investment income.......................... 1,803 282 555
-------- -------- --------
Gross investment income.......................... 412,064 361,445 339,841
Investment expenses.............................. 19,379 17,565 17,448
-------- -------- --------
Net investment income............................ $392,685 $343,880 $322,393
======== ======== ========
</TABLE>
- 26 -
<PAGE>
Proceeds from sales and maturities of debt securities and related gross
realized gains and losses were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Proceeds................................. $1,757,229 $1,430,339 $1,532,807
========== ========== ==========
Gross realized gains..................... $ 19,721 $ 15,411 $ 42,020
Gross realized losses.................... 34,399 33,044 9,071
---------- ---------- ----------
Net realized gains (losses).............. $ (14,678) $ (17,633) $ 32,949
========== ========== ==========
</TABLE>
At December 31, 1995, investments with an aggregate carrying value of
$5,404,474 were on deposit with regulatory authorities or were restrictively
held in bank custodial accounts for the benefit of such regulatory authorities
as required by statute.
Realized investment gains (losses) and changes in unrealized gains (losses)
for investments are summarized below:
<TABLE>
<CAPTION>
REALIZED
YEAR ENDED DECEMBER 31
----------------------------
1995 1994 1993
-------- --------- -------
<S> <C> <C> <C>
Debt securities............................... $(14,678) $ (17,633) $32,949
Short-term investments........................ 24 (309) 679
Equity securities............................. 504 1,322 (348)
Mortgage loans on real estate................. (1,053) (2,186) 199
Real estate................................... (1,908) (2,858) (41)
Other invested assets......................... (970) 14 33
-------- --------- -------
(18,081) (21,650) 33,471
Tax effect.................................... 7,878 7,236 (12,519)
Transfer to interest maintenance reserve...... (7,891) 10,790 (21,403)
-------- --------- -------
Net realized losses........................... $(18,096) $ (3,624) $ (451)
======== ========= =======
<CAPTION>
CHANGE IN UNREALIZED
YEAR ENDED DECEMBER 31
----------------------------
1995 1994 1993
-------- --------- -------
<S> <C> <C> <C>
Debt securities............................... $355,560 $(322,346) $28,210
Equity securities............................. (16,379) (23,202) 3,449
-------- --------- -------
Change in unrealized appreciation (deprecia-
tion)........................................ $339,181 $(345,548) $31,659
======== ========= =======
</TABLE>
Gross unrealized gains and gross unrealized losses on equity securities were
as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Unrealized gains................................... $ 6,833 $20,244 $42,045
Unrealized losses.................................. 8,895 5,927 4,526
------- ------- -------
Net unrealized gains (losses)...................... $(2,062) $14,317 $37,519
======= ======= =======
</TABLE>
During 1995, the Company issued mortgage loans with interest rates ranging
from 7.41% to 9.86%. The maximum percentage of any one mortgage loan to the
value of the underlying real estate at origination was 85%. Mortgage loans
with a carrying value of $12,782 were non-income producing for the previous
twelve months. Accrued interest of $1,957 related to these mortgage
- 27 -
<PAGE>
loans was excluded from investment income. The Company requires all mortgage
loans to carry fire insurance equal to the value of the underlying property.
During 1995, 1994 and 1993, mortgage loans of $1,644, $799 and $101,
respectively, were foreclosed and transferred to real estate. At December 31,
1995 and 1994, the Company held a mortgage loan loss reserve in the asset
valuation reserve of $6,168 and $5,204, respectively. At December 31, 1995,
the mortgage loan portfolio is diversified by geographic region and specific
collateral property type as follows:
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION
- -----------------------------
<S> <C>
South Atlantic.......... 26.2%
Mountain................ 12.4
W. South Central........ 14.3
Pacific................. 16.7
E. North Central........ 13.0
E. South Central........ 5.3
W. North Central........ 5.5
Middle Atlantic......... 3.1
New England............. 3.5
</TABLE>
<TABLE>
<CAPTION>
PROPERTY TYPE DISTRIBUTION
- -----------------------------
<S> <C>
Retail.................. 31.2%
Apartment............... 20.4
Office.................. 29.1
Industrial.............. 3.8
Hotel/Motel............. 1.4
Other................... 14.1
</TABLE>
At December 31, 1995, the Company had the following investments (excluding
U.S. Government guaranteed or insured issues) which individually represented
more than ten percent of capital and surplus and the asset valuation reserve:
<TABLE>
<CAPTION>
CARRYING
DESCRIPTION OF SECURITY OR ISSUER VALUE
--------------------------------- --------
<S> <C>
Bonds:
Standard Credit Card Trust.......................................... $84,607
G E Capital......................................................... 48,290
Green Tree Financial Corporation.................................... 44,128
</TABLE>
4. REINSURANCE
The Company reinsures portions of risk on certain insurance policies which
exceed its established limits, thereby providing a greater diversification of
risk and minimizing exposure on larger risks. The Company remains contingently
liable with respect to any insurance ceded, and this would become an actual
liability in the event that the assuming insurance company became unable to
meet its obligation under the reinsurance treaty.
Reinsurance assumption and cession treaties are transacted primarily with
affiliates. Premiums earned reflect the following reinsurance assumed and
ceded amounts:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Direct premiums.......................... $1,591,531 $1,857,446 $1,472,409
Reinsurance assumed...................... 2,356 1,832 3,040
Reinsurance ceded........................ (324,993) (412,029) (369,203)
---------- ---------- ----------
Net premiums earned...................... $1,268,894 $1,447,249 $1,106,246
========== ========== ==========
</TABLE>
The Company received reinsurance recoveries in the amount of $167,287,
$148,414 and $97,409 during 1995, 1994 and 1993, respectively. At December 31,
1995 and 1994, estimated amounts recoverable from reinsurers that have been
deducted from policy and contract claim
- 28 -
<PAGE>
reserves totaled $65,503 and $62,882, respectively. The aggregate reserves for
policies and contracts were reduced for reserve credits for reinsurance ceded
at December 31, 1995 and 1994 of $2,920,034 and $2,977,954, respectively.
At December 31, 1995, amounts recoverable from unauthorized reinsurers of
$70,516 (1994--$43,055) and reserve credits for reinsurance ceded of $48,992
(1994--$59,131) were associated with a single reinsurer and its affiliates.
The Company holds collateral under these reinsurance agreements in the form of
trust agreements totaling $110,714 at December 31, 1995 that can be drawn on
for amounts that remain unpaid for more than 120 days.
5. INCOME TAXES
For federal income tax purposes, the Company joins in a consolidated tax
return filing with certain affiliated companies. Under the terms of a tax-
sharing agreement between the Company and its affiliates, the Company computes
federal income tax expense as if it were filing a separate income tax return,
except that tax credits and net operating loss carryforwards are determined on
the basis of the consolidated group. Additionally, the alternative minimum tax
is computed for the consolidated group and the resulting tax, if any, is
allocated back to the separate companies on the basis of the separate
companies' alternative minimum taxable income.
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to gain from operations before taxes and
realized capital gains (losses) for the following reasons:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Computed tax at federal statutory rate (35%)...... $27,835 $24,106 $29,698
Tax reserve adjustment............................ 2,405 1,150 1,433
Excess tax depreciation........................... (365) (406) (248)
Deferred acquisition costs--tax basis............. 4,581 7,378 5,200
Prior year over accrual........................... (306) (644) (330)
Dividend received deduction....................... (56) (3,513) (1,202)
Charitable contribution........................... -- (3,935) --
Other items--net.................................. (759) (278) (2,884)
------- ------- -------
Federal income tax expense........................ $33,335 $23,858 $31,667
======= ======= =======
</TABLE>
Prior to 1984, as provided for under the Life Insurance Company Tax Act of
1959, a portion of statutory income was not subject to current taxation but
was accumulated for income tax purposes in a memorandum account referred to as
the policyholders' surplus account. No federal income taxes have been provided
for in the financial statements on income deferred in the policyholders'
surplus account ($20,387 at December 31, 1995). To the extent dividends are
paid from the amount accumulated in the policyholders' surplus account, net
earnings would be reduced by the amount of tax required to be paid. Should the
entire amount in the policyholders' surplus account become taxable, the tax
thereon computed at current rates would amount to approximately $7,135.
The Company's federal income tax returns have been examined and closing
agreements have been executed with the Internal Revenue Service through 1986.
During 1993, there was a $452 prior period adjustment to the tax accrual. An
examination is underway for years 1987 through 1992.
6. POLICY AND CONTRACT ATTRIBUTES
Participating life insurance policies are issued by the Company which
entitle policyholders to a share in the earnings of the participating
policies, provided that a dividend distribution, which
- 29 -
<PAGE>
is determined annually based on mortality and persistency experience of the
participating policies, is authorized by the Company. Participating insurance
constituted approximately 1.2% of ordinary life insurance in force at December
31, 1995 and 1994.
A portion of the Company's policy reserves and other policyholders' funds
(including separate account liabilities) relate to liabilities established on
a variety of the Company's products that are not subject to significant
mortality or morbidity risk; however, there may be certain restrictions placed
upon the amount of funds that can be withdrawn without penalty. The amount of
reserves on these products, by withdrawal characteristics are summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------
1995 1994
------------------ ------------------
PERCENT PERCENT
OF OF
AMOUNT TOTAL AMOUNT TOTAL
---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal
with market value adjustment......... $ 699 --% $ 29,625 --%
Subject to discretionary withdrawal at
book value less surrender charge..... 733,796 8% 521,631 7%
Subject to discretionary withdrawal at
market value......................... 1,390,156 16% 1,090,032 14%
Subject to discretionary withdrawal at
book value (minimal or no charges or
adjustments)......................... 6,395,719 74% 6,116,461 78%
Not subject to discretionary
withdrawal provision................. 139,330 2% 109,542 1%
---------- --- ---------- ---
8,659,700 100% 7,867,291 100%
Less reinsurance ceded................ 2,866,160 2,931,320
---------- ----------
Total policy reserves on annuities and
deposit fund liabilities............. $5,793,540 $4,935,971
========== ==========
</TABLE>
Reserves on the Company's traditional life products are computed using mean
reserving methodologies. These methodologies result in the establishment of
assets for the amount of the net valuation premiums that are anticipated to be
received between the policy's paid-through date to the policy's next
anniversary date. At December 31, 1995 and 1994, these assets (which are
reported as premiums deferred and uncollected) and the amounts of the related
gross premiums and loadings, are as follows:
<TABLE>
<CAPTION>
GROSS LOADING NET
------- ------- -------
<S> <C> <C> <C>
DECEMBER 31, 1995
Life and annuity:
Ordinary direct first year business............. $ 3,151 $ 2,223 $ 928
Ordinary direct renewal business................ 24,250 7,792 16,458
Group life direct business...................... 1,537 779 758
Reinsurance ceded............................... (1,362) (141) (1,221)
------- ------- -------
27,576 10,653 16,923
Accident and health:
Direct.......................................... 1,296 -- 1,296
Reinsurance ceded............................... (1,193) -- (1,193)
------- ------- -------
Total accident and health......................... 103 -- 103
------- ------- -------
$27,679 $10,653 $17,026
======= ======= =======
</TABLE>
- 30 -
<PAGE>
<TABLE>
<CAPTION>
GROSS LOADING NET
------- ------- -------
<S> <C> <C> <C>
DECEMBER 31, 1994
Life and annuity:
Ordinary direct first year business............. $ 3,940 $ 2,865 $ 1,075
Ordinary direct renewal business................ 26,155 8,979 17,176
Group life direct business...................... 1,386 522 864
Reinsurance ceded............................... (943) (67) (876)
------- ------- -------
30,538 12,299 18,239
Accident and health:
Direct.......................................... 2,186 -- 2,186
Reinsurance ceded............................... (2,039) -- (2,039)
------- ------- -------
Total accident and health......................... 147 -- 147
------- ------- -------
$30,685 $12,299 $18,386
======= ======= =======
</TABLE>
At December 31, 1995 and 1994, the Company had insurance in force
aggregating $87,010 and $92,680, respectively, in which the gross premiums are
less than the net premiums required by the standard valuation standards
established by the Insurance Division, Department of Commerce, of the State of
Iowa. The Company established policy reserves of $1,417 and $1,616 to cover
these deficiencies at December 31, 1995 and 1994, respectively.
In 1994, the NAIC enacted a guideline to clarify reserving methodologies for
contracts that require immediate payment of claims upon proof of death of the
insured. Companies were allowed to grade the effects of the change in
reserving methodologies over five years. A direct charge to surplus of $501
was made for the year ended December 31, 1995, related to the change in
reserve methodology.
7. DIVIDEND RESTRICTIONS
Generally, an insurance company's ability to pay dividends is limited to the
amount that their net assets, as determined in accordance with statutory
accounting practices, exceed minimum statutory capital requirements. However,
payment of such amounts as dividends may be subject to approval by regulatory
authorities.
The Company paid dividends to its parent of $0, $20,900 and $46,000 in 1995,
1994 and 1993, respectively.
8. RETIREMENT AND COMPENSATION PLANS
The Company's employees participate in a qualified benefit pension plan
sponsored by AEGON. The Company has no legal obligation for the plan. The
Company recognizes pension expense equal to its allocation from AEGON. The
pension expense is allocated among the participating companies based on the
FASB No. 87 expense as a percent of salaries. The benefits are based on years
of service and the employee's compensation during the highest five consecutive
years of employment. Pension expense aggregated $942, $966 and $782 for the
years ended December 31, 1995, 1994 and 1993, respectively. The plan is
subject to the reporting and disclosure requirements of the Employee
Retirement and Income Security Act of 1974.
The Company's employees also participate in a contributory defined
contribution plan sponsored by AEGON which is qualified under Section 401(k)
of the Internal Revenue Service Code. Employees of the Company who customarily
work at least 1,000 hours during each calendar year and meet the other
eligibility requirements, are participants of the plan. Participants may
- 31 -
<PAGE>
elect to contribute up to fifteen percent of their salary to the plan. The
Company will match an amount up to three percent of the participant's salary.
Participants may direct all of their contributions and plan balances to be
invested in a variety of investment options. The plan is subject to the
reporting and disclosure requirements of the Employee Retirement and Income
Security Act of 1974. Expense related to this plan was $465, $411 and $386 for
the years ended December 31, 1995, 1994 and 1993, respectively.
AEGON sponsors supplemental retirement plans to provide the Company's senior
management with benefits in excess of normal pension benefits. The plans are
noncontributory and benefits are based on years of service and the employee's
compensation level. The plans are unfunded and nonqualified under the Internal
Revenue Service Code. In addition, AEGON has established incentive deferred
compensation plans for certain key employees of the Company. AEGON also
sponsors an employee stock option plan for individuals employed at least three
years and a stock purchase plan for its producers, with the participating
affiliated companies establishing their own eligibility criteria, producer
contribution limits and company matching formula. These plans have been
accrued or funded as deemed appropriate by management of AEGON and the
Company.
In addition to pension benefits, the Company participates in plans sponsored
by AEGON that provide postretirement medical, dental and life insurance
benefits to employees meeting certain eligibility requirements. Portions of
the medical and dental plans are contributory. The expenses of the
postretirement plans calculated on the pay-as-you-go basis are charged to
affiliates in accordance with an intercompany cost sharing arrangement. The
Company expensed $164, $169 and $0 for the years ended December 31, 1995, 1994
and 1993, respectively.
9. RELATED PARTY TRANSACTIONS
The Company receives data processing, investment advisory and management,
marketing and administration services from certain affiliates. During 1995,
1994 and 1993, the Company paid $14,214, $11,820 and $11,689, respectively,
for these services, which approximates their costs to the affiliates.
Payable to affiliates and intercompany borrowings bear interest at the
thirty-day commercial paper rate of 5.64% at December 31, 1995. During 1995,
1994 and 1993, the Company paid net interest of $794, $363 and $283,
respectively, to affiliates.
During 1995 and 1994, the Company received capital contributions of $40,000
and $15,000, respectively, in cash from its parent and during 1994 received a
dividend of $10,000 from its subsidiary, Equity National, which was included
in net investment income.
During 1995, the Company sold real estate with a book value of approximately
$13,270 to an affiliated entity in exchange for a short-term note receivable.
No gain was recognized on this sale. This note bears interest at 5.65% and
matures on March 28, 1996.
During the year ended December 31, 1995, the Company restructured demand
notes and accrued interest of $13,250 and $745, respectively, related to an
affiliate. The Company received 9,750 shares of preferred stock from the
affiliate for satisfaction of debt. The Company realized a loss of $8,695
related to this transaction. At December 31, 1995, the preferred stock related
to this affiliate was deemed to have no value and an unrealized loss of $4,555
was recognized.
10. COMMITMENTS AND CONTINGENCIES
The Company is a party to legal proceedings incidental to its business.
Although such litigation sometimes includes substantial demands for
compensatory and punitive damages, in
- 32 -
<PAGE>
addition to contract liability, it is management's opinion, after consultation
with counsel and a review of available facts, that damages arising from such
demands will not be material to the Company's financial position.
The Company is subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against insurance
companies for the benefit of policyholders and claimants in the event of
insolvency of other insurance companies. Assessments are charged to operations
when received by the Company except where right of offset against other taxes
paid is allowed by law; amounts available for future offsets are recorded as
an asset on the Company's balance sheet. Potential future obligations for
unknown insolvencies are not determinable by the Company. The future
obligation has been based on the most recent information available from the
National Organization of Life and Health Insurance Guaranty Associations
(NOLHGA). The Company has established a reserve of $21,747 and $18,344 and an
offsetting premium tax benefit of $9,457 and $10,556 at December 31, 1995 and
1994, respectively, for its estimated share of future guaranty fund
assessments related to several major insurer insolvencies. During 1994, $3,444
was charged to surplus as prior period adjustments to provide for this net
reserve plus certain assessments paid that related to several major insurer
insolvencies prior to 1992. The guaranty fund expense was $5,859, $4,054 and
$0 for December 31, 1995, 1994 and 1993, respectively.
11. SUBSEQUENT EVENT
Effective January 10, 1996, the Company announced it had signed a Memorandum
of Understanding with United Insurance Companies, Inc. to sell its North
Richland Hills, Texas health administrative operations known as The Insurance
Center. The transaction, which is subject to approval by the Board of
Directors of both companies, will result in the transfer of all employees and
office facilities to United Insurance Companies, Inc. All inforce business
will continue to be shared by United Insurance Companies, Inc. and the Company
and its affiliates through the existing coinsurance agreements. After a short
transition period, all new business produced by United Group Association, an
independent insurance agency, will be written by the insurance subsidiaries of
United Insurance Companies, Inc. and will not be shared with the Company and
its affiliates through coinsurance arrangements. The transaction is expected
to be completed on or about April 1, 1996.
- 33 -
<PAGE>
SCHEDULE I
PFL LIFE INSURANCE COMPANY
SUMMARY OF INVESTMENTS--OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AMOUNT AT WHICH
MARKET SHOWN IN THE
TYPE OF INVESTMENT COST (1) VALUE BALANCE SHEET (2)
------------------ ---------- ---------- ------------------
<S> <C> <C> <C>
FIXED MATURITIES
Bonds:
United States Government and
government agencies and
authorities........................ $1,616,094 $1,674,088 $1,613,124
States, municipalities and political
subdivisions....................... 3,975 4,576 3,975
Foreign governments................. 43,053 45,128 42,261
Public utilities.................... 158,821 165,107 156,619
All other corporate bonds........... 2,809,545 2,935,736 2,797,355
Redeemable preferred stock............ 9,336 12,275 9,336
---------- ---------- ----------
Total fixed maturities................ 4,640,824 4,836,910 4,622,670
EQUITY SECURITIES
Common stocks:
Banks, trust and insurance.......... 5,114 6,221 6,221
Industrial, miscellaneous and all
other.............................. 13,947 18,645 18,645
---------- ---------- ----------
Total equity securities............... 19,061 24,866 24,866
Mortgage loans on real estate......... 680,414 680,414
Real estate........................... 60,856 60,856
Real estate acquired in satisfaction
of debt.............................. 2,648 2,648
Policy loans.......................... 52,675 52,675
Other long-term investments........... 5,586 5,586
Cash and short-term investments....... 79,852 79,852
---------- ----------
Total investments..................... $5,541,916 $5,529,567
========== ==========
</TABLE>
- --------
(1) Original cost of equity securities and, as to fixed maturities, original
cost reduced by repayments and adjusted for amortization of premiums or
accrual of discounts.
(2) Amount differs from cost as certain bonds have been adjusted to reflect
other than temporary decline in value charged to surplus, as prescribed by
the NAIC.
- 34 -
<PAGE>
SCHEDULE III
PFL LIFE INSURANCE COMPANY
SUPPLEMENTARY INSURANCE INFORMATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FUTURE POLICY POLICY AND
BENEFITS AND UNEARNED CONTRACT
EXPENSES PREMIUMS LIABILITIES
------------- -------- -----------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Individual life.............................. $ 594,274 $ -- $ 6,066
Individual health............................ 24,225 7,768 11,863
Group life and health........................ 67,994 16,662 58,813
Annuity...................................... 4,220,274 -- --
---------- ------- -------
$4,906,767 $24,430 $76,742
========== ======= =======
YEAR ENDED DECEMBER 31, 1994
Individual life.............................. $ 544,087 $ -- $ 7,298
Individual health............................ 16,649 6,487 8,643
Group life and health........................ 60,207 17,680 57,959
Annuity...................................... 3,693,388 -- --
---------- ------- -------
$4,314,331 $24,167 $73,900
========== ======= =======
YEAR ENDED DECEMBER 31, 1993
Individual life.............................. $ 402,985 $ -- $ 8,424
Individual health............................ 11,714 4,623 6,494
Group life and health........................ 108,355 17,783 55,265
Annuity...................................... 3,124,527 -- --
---------- ------- -------
$3,647,581 $22,406 $70,183
========== ======= =======
</TABLE>
- 35 -
<PAGE>
<TABLE>
<CAPTION>
NET BENEFITS, CLAIMS OTHER
PREMIUM INVESTMENT LOSSES AND OPERATING PREMIUMS
REVENUE INCOME SETTLEMENT EXPENSES EXPENSES WRITTEN
------- ---------- ------------------- --------- ----------
<S> <C> <C> <C> <C>
$ 111,918 $ 49,929 $ 97,065 $ 37,933 $ --
47,692 4,091 25,793 26,033 47,690
187,832 11,665 106,065 139,640 184,545
921,452 327,000 1,116,768 114,164 921,448
- ---------- -------- ---------- -------- ----------
$1,268,894 $392,685 $1,345,691 $317,770 $1,153,683
========== ======== ========== ======== ==========
$ 146,328 $ 43,025 $ 124,736 $ 42,309 $ --
38,811 3,983 22,323 22,707 38,797
194,704 10,531 108,400 143,645 192,034
1,067,406 286,341 1,036,313 319,328 1,067,404
- ---------- -------- ---------- -------- ----------
$1,447,249 $343,880 $1,291,772 $527,989 $1,298,235
========== ======== ========== ======== ==========
$ 95,716 $ 36,471 $ 71,638 $ 56,462 $ --
28,388 1,024 16,663 15,987 28,434
241,356 13,465 135,764 148,254 239,575
740,786 271,433 506,949 457,328 740,900
- ---------- -------- ---------- -------- ----------
$1,106,246 $322,393 $ 731,014 $678,031 $1,008,909
========== ======== ========== ======== ==========
</TABLE>
- 36 -
<PAGE>
SCHEDULE IV
PFL LIFE INSURANCE COMPANY
REINSURANCE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSUMED PERCENTAGE
CEDED TO FROM OF AMOUNT
GROSS OTHER OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
---------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1995
Life insurance in force.. $4,594,434 $468,811 $ 22,936 $4,148,559 .6%
========== ======== ======== ========== ===
Premiums:
Individual life........ $ 113,934 $ 3,841 $ 1,825 $ 111,918 1.6%
Individual health...... 60,309 12,617 -- 47,692 --
Group life and health.. 408,097 220,265 -- 187,832 --
Annuity................ 1,009,191 88,270 531 921,452 .05%
---------- -------- -------- ---------- ---
$1,591,531 $324,993 $ 2,356 $1,268,894 .2%
========== ======== ======== ========== ===
YEAR ENDED DECEMBER 31,
1994
Life insurance in force.. $4,713,817 $468,811 $112,054 $4,357,060 2.6%
========== ======== ======== ========== ===
Premiums:
Individual life........ $ 148,702 $ 3,639 $ 1,265 $ 146,328 .9%
Individual health...... 50,303 11,492 -- 38,811 --
Group life and health.. 412,200 217,496 -- 194,704 --
Annuity................ 1,246,241 179,402 567 1,067,406 .05%
---------- -------- -------- ---------- ---
$1,857,446 $412,029 $ 1,832 $1,447,249 .1%
========== ======== ======== ========== ===
YEAR ENDED DECEMBER 31,
1993
Life insurance in force.. $4,773,533 $387,843 $192,203 $4,577,893 4.2%
========== ======== ======== ========== ===
Premiums:
Individual life........ $ 95,982 $ 2,640 $ 2,373 $ 95,715 2.5%
Individual health...... 37,709 9,321 -- 28,388 --
Group life and health.. 401,906 160,550 -- 241,356 --
Annuity................ 936,812 196,692 667 740,787 .1%
---------- -------- -------- ---------- ---
$1,472,409 $369,203 $ 3,040 $1,106,246 .3%
========== ======== ======== ========== ===
</TABLE>
- 37 -
<PAGE>
THE PFL ENDEAVOR VARIABLE ANNUITY ACCOUNT
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Contract Owners of
The PFL Endeavor Variable Annuity Account,
PFL Life Insurance Company:
We have audited the accompanying balance sheet of The PFL Endeavor Variable
Annuity Account (comprising, respectively, the Money Market, Managed Asset
Allocation, T. Rowe Price International Stock, formerly Global Growth, Quest
for Value Equity, Quest for Value Small Cap, U.S. Government Securities, T.
Rowe Price Equity Income, T. Rowe Price Growth Stock and Growth subaccounts)
as of December 31, 1995, and the related statements of operations and changes
in contract owners' equity for the periods indicated therein. These financial
statements are the responsibility of the Variable Account's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of mutual fund shares owned as of December
31, 1995 by correspondence with the mutual funds' transfer agent. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of each of the respective
subaccounts constituting The PFL Endeavor Variable Annuity Account at December
31, 1995, and the results of their operations and changes in their contract
owners' equity for the periods indicated therein in conformity with generally
accepted accounting principles.
Ernst & Young LLP
Des Moines, Iowa
February 6, 1996
- 38 -
<PAGE>
THE PFL ENDEAVOR VARIABLE ANNUITY ACCOUNT
BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<CAPTION>
MANAGED
MONEY ASSET
MARKET ALLOCATION
TOTAL SUBACCOUNT SUBACCOUNT
------------ ---------- -----------
<S> <C> <C> <C>
ASSETS
Cash....................................... $ 898 391 --
Investments in mutual funds, at current
market value:
Endeavor Series Trust--Money Market
Portfolio 23,545,639.080 shares @ $1.00
(cost $23,545,639)...................... 23,545,639 23,545,639 --
Endeavor Series Trust--Managed Asset
Allocation Portfolio 11,918,924.892
shares @ $16.28 (cost $168,919,415)..... 194,040,097 -- 194,040,097
Endeavor Series Trust--T. Rowe Price
International Stock Portfolio
7,211,148.667 shares @ $12.19 (cost
$85,267,781)............................ 87,903,902 -- --
Endeavor Series Trust--Quest for Value
Equity Portfolio 4,505,534.118 shares @
$14.23 (cost $51,552,044)............... 64,113,750 -- --
Endeavor Series Trust--Quest for Value
Small Cap Portfolio 4,013,176.177 shares
@ $12.22 (cost $44,614,794)............. 49,041,013 -- --
Endeavor Series Trust--U.S. Government
Securities Portfolio 834,755.868 shares
@ $11.39 (cost $8,945,265).............. 9,507,869 -- --
Endeavor Series Trust--T. Rowe Price
Equity Income Portfolio 1,474,000.727
shares @ $13.05 (cost $16,969,518)...... 19,235,709 -- --
Endeavor Series Trust--T. Rowe Price
Growth Stock Portfolio 1,400,374.957
shares @ $13.72 (cost $17,299,992)...... 19,213,144 -- --
WRL Series Fund, Inc.--Growth Portfolio
6,143,489.599 shares @ $31.660740 (cost
$165,131,909)........................... 194,507,427 -- --
------------ ---------- -----------
Total investments in mutual funds........ 661,108,550 23,545,639 194,040,097
------------ ---------- -----------
Total Assets............................. $661,109,448 23,546,030 194,040,097
============ ========== ===========
LIABILITIES AND CONTRACT OWNERS' EQUITY
LIABILITIES:
Contract terminations payable............ $ 1,716 -- 1,365
------------ ---------- -----------
Total Liabilities........................ 1,716 -- 1,365
Contract Owners' Equity:
Deferred annuity contracts terminable by
owners (Notes 2 and 5).................. 661,107,732 23,546,030 194,038,732
------------ ---------- -----------
$661,109,448 23,546,030 194,040,097
============ ========== ===========
</TABLE>
See accompanying Notes to Financial Statements.
- 39 -
<PAGE>
<TABLE>
<CAPTION>
T. ROWE PRICE QUEST QUEST U.S. T. ROWE PRICE
INTERNATIONAL FOR VALUE FOR VALUE GOVERNMENT T. ROWE PRICE GROWTH
STOCK EQUITY SMALL CAP SECURITIES EQUITY INCOME STOCK GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------- ---------- ---------- ---------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
348 -- -- 4 -- -- 155
-- -- -- -- -- -- --
-- -- -- -- -- -- --
87,903,902 -- -- -- -- -- --
-- 64,113,750 -- -- -- -- --
-- -- 49,041,013 -- -- -- --
-- -- -- 9,507,869 -- -- --
-- -- -- -- 19,235,709 -- --
-- -- -- -- -- 19,213,144 --
-- -- -- -- -- -- 194,507,427
---------- ---------- ---------- --------- ---------- ---------- -----------
87,903,902 64,113,750 49,041,013 9,507,869 19,235,709 19,213,144 194,507,427
---------- ---------- ---------- --------- ---------- ---------- -----------
87,904,250 64,113,750 49,041,013 9,507,873 19,235,709 19,213,144 194,507,582
========== ========== ========== ========= ========== ========== ===========
-- 38 107 -- 20 186 --
---------- ---------- ---------- --------- ---------- ---------- -----------
-- 38 107 -- 20 186 --
87,904,250 64,113,712 49,040,906 9,507,873 19,235,689 19,212,958 194,507,582
---------- ---------- ---------- --------- ---------- ---------- -----------
87,904,250 64,113,750 49,041,013 9,507,873 19,235,709 19,213,144 194,507,582
========== ========== ========== ========= ========== ========== ===========
</TABLE>
- 40 -
<PAGE>
THE PFL ENDEAVOR VARIABLE ANNUITY ACCOUNT
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995, EXCEPT AS NOTED
<TABLE>
<CAPTION>
MONEY
MARKET
TOTAL SUBACCOUNT
------------ ----------
<S> <C> <C>
NET INVESTMENT INCOME (LOSS)
Income:
Dividends........................................... $ 26,198,860 1,116,099
Expenses (Note 4):
Administration Fee.................................. 373,588 9,828
Mortality and expense risk charge................... 7,617,955 290,516
------------ ----------
Net investment income (loss)...................... 18,207,317 815,755
------------ ----------
NET REALIZED AND UNREALIZED CAPITAL GAIN FROM
INVESTMENTS
Net realized capital gain from sales of investments:
Proceeds from sales................................. 97,564,377 22,147,452
Cost of investments sold............................ 92,487,079 22,147,452
------------ ----------
Net realized capital gain from sales of investments... 5,077,298 --
Net change in unrealized appreciation/depreciation of
investments:
Beginning of the period............................. (19,759,305) --
End of the period................................... 78,862,193 --
------------ ----------
Net change in unrealized appreciation/depreciation
of investments................................... 98,621,498 --
------------ ----------
Net realized and unrealized capital gain from
investments...................................... 103,698,796 --
------------ ----------
INCREASE FROM OPERATIONS.............................. $121,906,113 815,755
============ ==========
</TABLE>
/(1)/Period from January 3, 1995 (commencement of operations) to December 31,
1995
See accompanying Notes to Financial Statements.
- 41 -
<PAGE>
<TABLE>
<CAPTION>
MANAGED T. ROWE PRICE QUEST QUEST U.S. T. ROWE PRICE
ASSET INTERNATIONAL FOR VALUE FOR VALUE GOVERNMENT T. ROWE PRICE GROWTH
ALLOCATION STOCK EQUITY SMALL CAP SECURITIES EQUITY INCOME STOCK GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT/1/ SUBACCOUNT/1/ SUBACCOUNT
- ---------- ------------- ---------- ---------- ---------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
3,088,290 1,905,564 450,078 898,264 45,359 6,080 2,293 18,686,833
120,822 62,100 28,047 25,718 2,106 2,723 2,561 119,683
2,519,643 1,128,199 651,904 558,056 68,038 110,030 118,920 2,172,649
- ---------- ---------- ---------- --------- --------- --------- --------- -----------
447,825 715,265 (229,873) 314,490 (24,785) (106,673) (119,188) 16,394,501
- ---------- ---------- ---------- --------- --------- --------- --------- -----------
28,948,644 15,084,564 5,610,299 6,682,997 1,987,556 1,290,315 2,586,929 13,225,621
26,638,735 14,814,382 4,637,825 6,499,082 1,881,414 1,219,746 2,265,355 12,383,088
- ---------- ---------- ---------- --------- --------- --------- --------- -----------
2,309,909 270,182 972,474 183,915 106,142 70,569 321,574 842,533
(6,470,369) (3,433,341) 812,987 98,422 (5,607) -- -- (10,761,397)
25,120,682 2,636,121 12,561,706 4,426,219 562,604 2,266,191 1,913,152 29,375,518
- ---------- ---------- ---------- --------- --------- --------- --------- -----------
31,591,051 6,069,462 11,748,719 4,327,797 568,211 2,266,191 1,913,152 40,136,915
- ---------- ---------- ---------- --------- --------- --------- --------- -----------
33,900,960 6,339,644 12,721,193 4,511,712 674,353 2,336,760 2,234,726 40,979,448
- ---------- ---------- ---------- --------- --------- --------- --------- -----------
34,348,785 7,054,909 12,491,320 4,826,202 649,568 2,230,087 2,115,538 57,373,949
========== ========== ========== ========= ========= ========= ========= ===========
</TABLE>
- 42 -
<PAGE>
THE PFL ENDEAVOR VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994, EXCEPT AS NOTED
<TABLE>
<CAPTION>
MANAGED ASSET T. ROWE PRICE
MONEY MARKET ALLOCATION INTERNATIONAL STOCK
TOTAL SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------------------- ----------------------- ------------------------ ----------------------
1995 1994 1995 1994 1995 1994 1995 1994
------------ ----------- ---------- ----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operations
Net investment
income (loss)..... $ 18,207,317 (3,274,517) 815,755 465,670 447,825 (1,488,243) 715,265 (1,109,593)
Net realized
capital gain
(loss)............ 5,077,298 2,419,866 -- -- 2,309,909 1,977,991 270,182 977,924
Net change in
unrealized
appreciation/
depreciation of
investments....... 98,621,498 (29,172,129) -- -- 31,591,051 (11,852,634) 6,069,462 (6,194,482)
------------ ----------- ---------- ----------- ----------- ----------- ---------- ----------
Increase (decrease)
from operations... 121,906,113 (30,026,780) 815,755 465,670 34,348,785 (11,362,886) 7,054,909 (6,326,151)
------------ ----------- ---------- ----------- ----------- ----------- ---------- ----------
Contract
Transactions
Net contract
purchase
payments.......... 88,211,583 234,302,912 5,841,943 23,014,906 12,410,145 89,871,864 9,184,786 36,258,430
Transfer payments
from (to) other
subaccounts or
general account... 11,542,564 6,082,359 1,552,478 (5,548,300) (13,050,954) 2,556,650 (5,983,049) 2,713,770
Contract
terminations,
withdrawals, and
other deductions.. (30,449,875) (29,167,293) (3,792,801) (11,622,320) (10,070,716) (7,166,325) (4,529,562) (3,168,882)
------------ ----------- ---------- ----------- ----------- ----------- ---------- ----------
Increase (decrease)
from contract
transactions...... 69,304,272 211,217,978 3,601,620 5,844,286 (10,711,525) 85,262,189 (1,327,825) 35,803,318
------------ ----------- ---------- ----------- ----------- ----------- ---------- ----------
Net increase in
contract owners'
equity............ 191,210,385 181,191,198 4,417,375 6,309,956 23,637,260 73,899,303 5,727,084 29,477,167
------------ ----------- ---------- ----------- ----------- ----------- ---------- ----------
Contract Owners'
Equity
Beginning of
period............ 469,897,347 288,706,149 19,128,655 12,818,699 170,401,472 96,502,169 82,177,166 52,699,999
------------ ----------- ---------- ----------- ----------- ----------- ---------- ----------
End of period...... $661,107,732 469,897,347 23,546,030 19,128,655 194,038,732 170,401,472 87,904,250 82,177,166
============ =========== ========== =========== =========== =========== ========== ==========
</TABLE>
/(1)/ Period from May 9, 1994 (commencement of operations) to December 31, 1994
/(2)/ Period)from January 3, 1995 (commencement of operations) to December 31,
1995
See accompanying Notes to Financial Statements.
- 43 -
<PAGE>
<TABLE>
<CAPTION>
QUEST FOR U.S. GOVERNMENT T. ROWE PRICE T. ROWE PRICE
VALUE EQUITY QUEST FOR VALUE SMALL SECURITIES EQUITY INCOME GROWTH STOCK GROWTH
SUBACCOUNT CAP SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------------------- ---------------------- -------------------- ------------- ------------- ------------------------
1995 1994 1995 1994 1995 1994/1/ 1995/2/ 1995/3/ 1995 1994
- ---------- ---------- ---------- ---------- --------- --------- ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(229,873) (318,537) 314,490 (377,316) (24,785) (16,068) (106,673) (119,188) 16,394,501 (430,430)
972,474 123,433 183,915 87,357 106,142 (1,629) 70,569 321,574 842,533 (745,210)
11,748,719 701,663 4,327,797 (337,832) 568,211 (5,607) 2,266,191 1,913,152 40,136,915 (11,483,237)
- ---------- ---------- ---------- ---------- --------- --------- ---------- ---------- ----------- -----------
12,491,320 506,559 4,826,202 (627,791) 649,568 (23,304) 2,230,087 2,115,538 57,373,949 (12,658,877)
- ---------- ---------- ---------- ---------- --------- --------- ---------- ---------- ----------- -----------
12,995,862 17,773,676 8,735,949 20,426,242 4,592,266 1,474,717 8,911,233 8,445,892 17,093,507 45,483,077
9,309,756 3,393,046 2,469,022 3,358,491 1,487,465 1,630,896 8,365,208 9,027,597 (1,634,959) (2,022,194)
(2,587,120) (931,795) (1,976,028) (854,836) (280,049) (23,686) (270,839) (376,069) (6,566,691) (5,399,449)
- ---------- ---------- ---------- ---------- --------- --------- ---------- ---------- ----------- -----------
19,718,498 20,234,927 9,228,943 22,929,897 5,799,682 3,081,927 17,005,602 17,097,420 8,891,857 38,061,434
- ---------- ---------- ---------- ---------- --------- --------- ---------- ---------- ----------- -----------
32,209,818 20,741,486 14,055,145 22,302,106 6,449,250 3,058,623 19,235,689 19,212,958 66,265,806 25,402,557
- ---------- ---------- ---------- ---------- --------- --------- ---------- ---------- ----------- -----------
31,903,894 11,162,408 34,985,761 12,683,655 3,058,623 -- -- -- 128,241,776 102,839,219
- ---------- ---------- ---------- ---------- --------- --------- ---------- ---------- ----------- -----------
64,113,712 31,903,894 49,040,906 34,985,761 9,507,873 3,058,623 19,235,689 19,212,958 194,507,582 128,241,776
========== ========== ========== ========== ========= ========= ========== ========== =========== ===========
</TABLE>
- 44 -
<PAGE>
THE PFL ENDEAVOR VARIABLE ANNUITY ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization--The PFL Endeavor Variable Annuity Account ("Mutual Fund
Account") is a segregated investment account of PFL Life Insurance Company
("PFL Life"), an indirect, wholly-owned subsidiary of AEGON USA, Inc.
("AUSA"), a holding company. AUSA is an indirect, wholly-owned subsidiary of
AEGON nv, a holding company organized under the laws of The Netherlands.
The T. Rowe Price Equity Income Subaccount and the T. Rowe Price Growth
Stock Subaccount commenced operations on January 3, 1995. The U.S. Government
Securities Subaccount commenced operations on May 9, 1994. Effective March 25,
1995, the names of the Global Growth Portfolio and Global Growth Subaccount
were changed to T. Rowe Price International Stock Portfolio and T. Rowe Price
International Stock Subaccount, respectively. The investment objective of the
portfolio was changed from an investment on a global basis to an investment on
an international basis (i.e. non-U.S. companies). The investment adviser of
the Endeavor Series Trust is Endeavor Investment Advisers, a general
partnership between Endeavor Management Co. and AUSA Financial Markets, Inc.,
an affiliate of PFL Life. The investment adviser for the WRL Series Fund, Inc.
is Western Reserve Life Assurance Co. of Ohio, an affiliate of PFL Life.
The Mutual Fund Account is registered with the Securities and Exchange
Commission as a Unit Investment Trust pursuant to provisions of the Investment
Company Act of 1940.
Investments--Net purchase payments received by the Mutual Fund Account are
invested in the portfolios of the Endeavor Series Trust, and the Growth
Portfolio of the WRL Series Fund, Inc. (collectively the "Series Funds"), as
selected by the contract owner. Investments are stated at the closing net
asset values per share on December 31, 1995.
Realized capital gains and losses from sale of shares in the Series Funds
are determined on the first-in, first-out basis. Investment transactions are
accounted for on the trade date (date the order to buy or sell is executed)
and dividend income is recorded on the ex-dividend date. Unrealized gains or
losses from investments in the Series Funds are credited or charged to
contract owners' equity.
Dividend Income--Dividends received from the Series Funds investments are
reinvested to purchase additional mutual fund shares.
- 45 -
<PAGE>
2. CONTRACT OWNERS' EQUITY
Contract owners' equity at December 31, 1995 includes an amount of
$2,489,112, which represents the current value of PFL Life's capital
contribution of $1,900,000. A summary of deferred annuity contracts terminable
by owners at December 31, 1995 follows:
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION TOTAL
SUBACCOUNT UNITS OWNED UNIT VALUE CONTRACT VALUE
---------- --------------- ------------ --------------
<S> <C> <C> <C>
Money Market.................. 21,103,926.232 $ 1.115718 $ 23,546,030
Managed Asset Allocation...... 122,974,873.030 1.577873 194,038,732
T. Rowe Price International
Stock........................ 75,065,177.549 1.171039 87,904,250
Quest for Value Equity........ 46,194,663.692 1.387903 64,113,712
Quest for Value Small Cap..... 40,635,696.978 1.206843 49,040,906
U.S. Government Securities.... 8,456,764.729 1.124292 9,507,873
T. Rowe Price Equity Income... 14,943,358.393 1.287240 19,235,689
T. Rowe Price Growth Stock.... 14,196,707.745 1.353339 19,212,958
Growth........................ 13,337,196.679 14.583843 194,507,582
------------
$661,107,732
============
</TABLE>
A summary of changes in contract owners' account units follows:
<TABLE>
<CAPTION>
T. ROWE T. ROWE
MANAGED T. ROWE PRICE QUEST QUEST U.S. PRICE PRICE
MONEY ASSET INTERNATIONAL FOR VALUE FOR VALUE GOVERNMENT EQUITY GROWTH
MARKET ALLOCATION STOCK EQUITY SMALL CAP SECURITIES INCOME STOCK GROWTH
SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT.
----------- ----------- ------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Units
outstanding at
1/1/94......... 12,190,858 69,252,243 45,569,234 10,958,837 11,449,957 -- -- -- 9,252,403
Units
purchased...... 21,768,210 65,293,446 31,452,554 17,192,747 18,848,853 1,486,305 -- -- 4,241,096
Units redeemed
and
transferred.... (16,122,228) (3,635,702) (503,744) 2,360,647 2,308,538 1,616,367 -- -- (734,541)
----------- ----------- ---------- ---------- ---------- --------- ---------- ---------- ----------
Units
outstanding at
12/31/94....... 17,836,840 130,909,987 76,518,044 30,512,231 32,607,348 3,102,672 -- -- 12,758,958
Units
purchased...... 5,330,850 8,434,205 8,306,067 10,252,470 7,689,441 4,246,735 7,630,746 6,772,799 1,343,793
Units redeemed
and
transferred.... (2,063,764) (16,369,319) (9,758,933) 5,429,963 338,908 1,107,358 7,312,612 7,423,909 (765,554)
----------- ----------- ---------- ---------- ---------- --------- ---------- ---------- ----------
Units
outstanding at
12/31/95....... 21,103,926 122,974,873 75,065,178 46,194,664 40,635,697 8,456,765 14,943,358 14,196,708 13,337,197
=========== =========== ========== ========== ========== ========= ========== ========== ==========
</TABLE>
3. TAXES
Operations of the Mutual Fund Account form a part of PFL Life, which is
taxed as a life insurance company under Subchapter L of the Internal Revenue
Code of 1986, as amended (the "Code"). The operations of the Mutual Fund
Account are accounted for separately from other operations of PFL Life for
purposes of federal income taxation. The Mutual Fund Account is not separately
taxable as a regulated investment company under Subchapter M of the Code and
is not otherwise taxable as an entity separate from PFL Life. Under existing
federal income tax laws, the income of the Mutual Fund Account, to the extent
applied to increase reserves under the variable annuity contracts, is not
taxable to PFL Life.
4. ADMINISTRATIVE, MORTALITY AND EXPENSE RISK CHARGE
Administrative charges include an annual charge of the lesser of 2% of the
policy value or $35 per contract which will commence on the first policy
anniversary of each contract owner's account. For policies issued on or after
May 1, 1995, the fee is waived if the sum of the premium payments less the sum
of all partial withdrawals is at least $50,000 on the policy anniversary.
Charges for administrative fees to the variable annuity contracts are an
expense of the Mutual Fund Account.
- 46 -
<PAGE>
PFL Life deducts a daily charge equal to an annual rate of 1.25% of the value
of the contract owners' account as a charge for assuming certain mortality and
expense risks. PFL Life also deducts a daily charge equal to an annual rate of
.15% of the contract owners' account for administrative expenses.
5. NET ASSETS
At December 31, 1995 contract owners' equity was comprised of:
<TABLE>
<CAPTION>
T. ROWE T. ROWE T. ROWE
MANAGED PRICE QUEST FOR QUEST FOR U.S. PRICE PRICE
MONEY ASSET INT'L VALUE VALUE GOVERNMENT EQUITY GROWTH
MARKET ALLOCATION STOCK EQUITY SMALL CAP SECURITIES INCOME STOCK
TOTAL SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT. SUBACCT.
------------ ---------- ----------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit
transactions,
accumulated net
investment
income and
realized
capital gains.. $582,245,539 23,546,030 168,918,050 85,268,129 51,552,006 44,614,687 8,945,269 16,969,498 17,299,806
Adjustment for
appreciation to
market value... 78,862,193 -- 25,120,682 2,636,121 12,561,706 4,426,219 562,604 2,266,191 1,913,152
------------ ---------- ----------- ---------- ---------- ---------- --------- ---------- ----------
Total Contract
Owners'
Equity......... $661,107,732 23,546,030 194,038,732 87,904,250 64,113,712 49,040,906 9,507,873 19,235,689 19,212,958
============ ========== =========== ========== ========== ========== ========= ========== ==========
<CAPTION>
GROWTH
SUBACCT.
-----------
<S> <C>
Unit
transactions,
accumulated net
investment
income and
realized
capital gains.. 165,132,064
Adjustment for
appreciation to
market value... 29,375,518
-----------
Total Contract
Owners'
Equity......... 194,507,582
===========
</TABLE>
6. PURCHASES AND SALES OF INVESTMENT SECURITIES
The aggregate cost of purchases and proceeds from sales of investments were
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 OR
COMMENCEMENT OF OPERATIONS TO DEEMBER 31
----------------------------------------------
1995 1994
----------------------- ----------------------
PURCHASES SALES PURCHASES SALES
------------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
Endeavor Series Trust
Money Market Portfolio..... $ 26,532,769 22,147,452 43,579,370 37,253,502
Managed Asset Allocation
Portfolio................. 18,527,700 28,948,644 103,215,961 19,396,350
T. Rowe Price International
Stock Portfolio........... 14,396,323 15,084,564 43,503,521 8,786,625
Quest for Value Equity
Portfolio................. 25,078,057 5,610,299 22,790,075 2,862,770
Quest for Value Small Cap
Portfolio................. 16,202,877 6,682,997 26,582,382 4,018,338
U.S. Government Securities
Portfolio................. 7,759,453 1,987,556 3,471,600 402,745
T. Rowe Price Equity Income
Portfolio................. 18,189,264 1,290,315 -- --
T. Rowe Price Growth Stock
Portfolio................. 19,565,347 2,586,929 -- --
WRL Series Fund, Inc.
Growth Portfolio........... 38,416,739 13,225,621 47,107,997 9,507,090
------------ ---------- ----------- ----------
$184,668,529 97,564,377 290,250,906 82,227,420
============ ========== =========== ==========
</TABLE>
- 47 -
<PAGE>
PART C OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
All required financial statements are included in Part B
of this Registration Statement.
(b) Exhibits: The following exhibits are filed herewith:
(1) (a) Resolution of the Board of Directors of PFL Life
Insurance Company authorizing establishment of the Mutual
Fund Account. Note 1.
(b) Authorization Changing Name of the Mutual Fund Account.
Note 9.
(2) Not Applicable.
(3) (a) Principal Underwriting Agreement by and between PFL Life
Insurance Company, on its own behalf and on the behalf of
the Mutual Fund Account, and MidAmerica Management
Corporation. Note 3.
(b) Form of Broker/Dealer Supervision and Sales Agreement by
and between MidAmerica Management Corporation and the
Broker/Dealer. Note 3.
(4) (a) Form of Policy for the Endeavor Variable Annuity. Note 3.
(b) Form of Policy Endorsement (Required Distributions). Note
3.
(c) Form of Policy Endorsement (Death Benefits). Note 4.
(d) Form of Policy Endorsement (Nursing Care). Note 7.
(e) Form of Policy Endorsement (Death Benefit). Note 8.
(5) Form of Application for the Endeavor Variable Annuity.
Note 8.
(6) (a) Articles of Incorporation of PFL Life Insurance Company.
Note 3.
(b) Bylaws of PFL Life Insurance Company. Note 3.
1
<PAGE>
(7) Not Applicable.
(8) (a) Participation Agreement by and between PFL Life Insurance
Company and Endeavor Series Trust. Note 3.
(b) Participation Agreement with WRL Series Fund, Inc. Note
5.
(c) Administrative Services Agreement by and between PFL Life
Insurance Company and State Street Bank and Trust Company
(assigned to Vantage Computer Systems, Inc.). Note 2.
(d) Amendment and Assignment of Administrative Services
Agreement. Note 3.
(e) Second Amendment to Administrative Services Agreement.
Note 4.
(9) (a) Opinion and Consent of Counsel. Note 2.
(b) Consent of Counsel. Note 2.
(10) Consent of Independent Auditors. Note 9.
(11) Not Applicable.
(12) Not Applicable.
(13) Performance Data Calculations. Note 7.
(14) Powers of Attorney (P.S. Baird, W.L. Busler, P.E.
Falconio, D.C. Kolsrud, R.J. Kontz, R.J. McGraw). Note 6.
(Craig D. Vermie) Note 9.
Note 1. Filed with the initial filing of this Form N-4 Registration
Statement (File No. 33-33085 on January 23, 1990.
Note 2. Filed with Pre-Effective Amendment No. 1 to this Form N-4
Registration Statement (File No. 33-33085) on April 9, 1990.
Note 3. Filed with Post-Effective Amendment No. 2 to this Form N-4
Registration Statement (File No. 33-33085) on April 1, 1991.
Note 4. Filed with Post-Effective Amendment No. 3 to this Form N-4
Registration Statement (File No. 33-33085) on April 29, 1992.
Note 5. Filed with Post-Effective Amendment No. 5 to this Form N-4
Registration Statement (File No. 33-33085) on April 30, 1993.
2
<PAGE>
Note 6. Filed with Post-Effective Amendment No. 6 to this Form N-4
Registration Statement (File No. 33-33085) on January 28,
1994.
Note 7. Filed with Post-Effective Amendment No. 7 to this Form N-4
Registration Statement (File No. 33-33085) on March 29, 1994.
Note 8. Filed with Post-Effective Amendment No. 10 to this Form N-4
Registration Statement (File No. 33-33085) on April 27, 1995.
Note 9. Filed herewith.
3
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
<TABLE>
<CAPTION>
PRINCIPAL POSITIONS
NAME AND AND OFFICES WITH
BUSINESS ADDRESS DEPOSITOR
- ---------------- ---------
<S> <C>
William L. Busler Director, Chairman of
4333 Edgewood Road, N.E. the Board and President
Cedar Rapids, IA 52499
Patrick S. Baird Director, Senior Vice President
4333 Edgewood Road, N.E. and Chief Financial
Cedar Rapids, IA 52499 Officer
Craig D. Vermie Director
4333 Edgewood Road, N.E. Vice President,
Cedar Rapids, IA 52499 Secretary, and Corporate
Counsel
Douglas C. Kolsrud Director, Vice President
4333 Edgewood Road, N.E. and Corporate Actuary
Cedar Rapids, IA 52499
Robert J. Kontz Vice President and
4333 Edgewood Road, N.E. Controller
Cedar Rapids, IA 52499
Patrick E. Falconio Director, Senior Vice
4333 Edgewood Road, N.E. President and Chief
Cedar Rapids, IA 52499 Investment Officer
Robert J. McGraw Vice President and
4333 Edgewood Road, N.E. Treasurer
Cedar Rapids, IA 52499
</TABLE>
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE
DEPOSITOR OR REGISTRANT
AEGON USA, Inc. - Holding Company
Life Investors Insurance Company of America - Insurance
International Life Investors Insurance Company - Insurance
Transunion Casualty Company - Insurance
Investors Warranty of America, Inc. - Provider of automobile extended
maintenance contracts
Supplemental Insurance Division, Inc. - Insurance
4
<PAGE>
Creditor Resources, Inc. - Credit Insurance
AEGON USA Investment Management, Inc. - Investment Advisor
AEGON USA Realty Advisors, Inc. - Provides real estate administrative
and real estate investment services
AEGON USA Realty Management, Inc. - Real Estate Management
AEGON USA Securities, Inc. - Broker-Dealer
AEGON USA Managed Portfolios, Inc. - Mutual Fund
USP Real Estate Investment Trust - Real Estate Investment Trust
Cedar Income Fund, Ltd. - Real Estate Investment Trust
First AUSA Life Insurance Company - Insurance
Bankers United Life Assurance Company - Insurance
Universal Benefits Corporation - Third party administrator
Massachusetts Fidelity Trust Company - Trust company
Money Services, Inc. - Provides financial counseling for employees and
agents of affiliated companies
Zahorik Company, Inc. - Broker-Dealer
Cadet Holding Corp. - Holding company
ISI Insurance Agency, Inc. - Broker/Dealer
Southwest Equity Life Insurance Company - Insurance
Iowa Fidelity Life Insurance Company - Insurance
The Whitestone Corporation - Insurance agency
Monumental Life Insurance Company - Insurance
5
<PAGE>
United Financial Services, Inc. - General agency
Monumental General Insurance Group, Inc. - Holding company
Monumental General Administrators, Inc. - Provides management services
to unaffiliated third party administrator
Executive Management and Consultant Services, Inc. - Provides
actuarial consulting services
Monumental General Mass Marketing, Inc. - Marketing arm for sale of
mass marketed insurance coverages
Bankers Financial Life Insurance Company - Insurance
Monumental General Casualty Company - Insurance
AUSA Holding Company - Holding company
JLW Financial Management Systems, Inc. - Management and Administrative
Services
ZCI, Inc. - Insurance agency
AUSA Financial Markets, Inc. - Marketing
CRC Creditor Resources Canadian Dealer Network Inc. - Insurance agency
American Forum For Fiscal Fitness, Inc. - Marketing
Western Reserve Life Assurance Co. of Ohio - Insurance
Landauer Realty Advisors, Inc. - Real estate counseling
Landauer Associates, Inc. - Real estate counseling
WRL Series Fund, Inc. - Mutual fund
Intersecurities, Inc. - Broker-dealer
Idex Investor Services, Inc. - Shareholder services
Idex Management, Inc. - Investment advisor
Idex Total Income Trust - Mutual fund
Idex Fund - Mutual fund
Idex II Series Fund - Mutual fund
6
<PAGE>
Idex Fund 3 - Mutual fund
AUSA Life Insurance Company, Inc. - Insurance
Diversified Investment Advisors, Inc. - Registered Investment Advisor
Diversified Investors Securities Corp. - Broker-Dealer
Associated Mariner Financial Group, Inc. - Holding company management
services
Mariner Financial Services, Inc. - Broker/Dealer
Mariner/ISI Planning Corporation - Financial planning
Associated Mariner Agency, Inc. - Insurance agency
Mariner Mortgage Corp. - Mortgage origination
AUSA Institutional Marketing Group, Inc. - Insurance Agency
Colorado Annuity Agency, Inc. - Insurance agency
Realty Information Systems, Inc. - Information Systems for real estate
investment management
Melson and Associates, Inc. - Real estate financial management consulting
ITEM 27. NUMBER OF POLICYOWNERS
As of December 31, 1995, there were 14,383 Owners of the Policies.
ITEM 28. INDEMNIFICATION
The Iowa Code (Sections 490.850 et. seq.) provides for permissive
indemnification in certain situations, mandatory indemnification in other
situations, and prohibits indemnification in certain situations. The Code also
specifies procedures for determining when indemnification payments can be made.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Depositor pursuant to the foregoing provisions, or otherwise, the Depositor
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Depositor of expenses incurred
or paid by a director, officer or controlling person in connection with the
securities being registered), the Depositor will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
7
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITER
AEGON USA Securities, Inc.
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499
The directors and officers of
AEGON USA Securities, Inc.
are as follows:5
Patrick E. Falconio Charles G. Bennett
Director Vice President
William L Busler Thomas K. Walsh
Director Vice President
Brenda K. Clancy Donna M. Craft
Director Vice President
Robert A. Thelen Frank A. Camp
Senior Vice-President Secretary
Lorri E. Mehaffey
President and Treasurer
Billy J. Berger
Vice President and Assistant Treasurer
_____________________
/5/ The principal business address of each person listed is AEGON USA
Securities, Inc., 4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499.
Commissions and Other Compensation Received by Principal Underwriter.
AEGON USA Securities, Inc. and/or the broker-dealers received $13,569,474
from the Registrant during the last fiscal year for its services in distributing
the Policies. No other commission or compensation was received by the principal
underwriter, directly or indirectly, from the Registrant during the fiscal
year.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and Rules 31a-1 to 31a-3 promulgated thereunder,
are maintained by PFL Life Insurance Company at 4333 Edgewood Road, N.E., Cedar
Rapids, Iowa 52499.
ITEM 31. MANAGEMENT SERVICES.
8
<PAGE>
All management Policies are discussed in Part A or Part B.
ITEM 32. UNDERTAKINGS
(a) Registrant undertakes that it will file a post-effective
amendment to this registration statement as frequently as necessary to ensure
that the audited financial statements in the registration statement are never
more than 16 months old for so long as Premiums under the Policy may be
accepted.
(b) Registrant undertakes that it will include either (i) a
postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information or (ii) a space in the Policy application that an applicant can
check to request a Statement of Additional Information.
(c) Registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form promptly upon written or oral request to PFL at the address or phone
number listed in the Prospectus.
SECTION 403(B) REPRESENTATIONS
PFL represents that it is relying on a no-action letter dated November
28, 1988, to the American Council of Life Insurance (Ref. No. IP-6-88),
regarding Sections 22(e), 27(c)(1), and 27(d) of the Investment Company Act of
1940, in connection with redeemability restrictions on Section 403(b) Policies,
and that paragraphs numbered (1) through (4) of that letter will be complied
with.
STATEMENT PURSUANT TO RULE 6C-7: TEXAS OPTIONAL RETIREMENT PROGRAM
PFL and the Mutual Fund Account rely on 17 C.F.R. Sec. 270.6c-7, and
represent that the provisions of that Rule have been or will be complied with.
9
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant hereby certifies that this Amendment to the Registration
Statement meets the requirements for effectiveness pursuant to paragraph (b) of
Rule 485 and has caused this Registration Statement to be signed on its behalf,
in the City of Cedar Rapids and State of Iowa, on this 24th day of April, 1996.
PFL ENDEAVOR VA SEPARATE
ACCOUNT
PFL LIFE INSURANCE COMPANY
Depositor
/s/ William L. Busler
----------------------------
William L. Busler
President
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the duties indicated.
Signatures Title Date
- ---------- ----- ----
/s/ Patrick S. Baird Director April 24, 1996
- -----------------------
Patrick S. Baird
/s/ Craig D. Vermie Director April 24, 1996
- -----------------------
Craig D. Vermie
/s/ William L. Busler Director April 24, 1996
- -----------------------
William L. Busler (Principal Executive Officer)
/s/ Patrick E. Falconio Director April 24, 1996
- -----------------------
Patrick E. Falconio
/s/ Douglas C. Kolsrud Director April 24, 1996
- -----------------------
Douglas C. Kolsrud
/s/ Robert J. Kontz Vice President and April 24, 1996
- ----------------------- Corporate Controller
Robert J. Kontz
/s/ Robert J. McGraw Treasurer April 24, 1996
- -----------------------
Robert J. McGraw
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION OF EXHIBIT NO.*
------- ---------------------- ----
<S> <C> <C>
(1b) Certification of Name Change
(10) Consent of Independent Auditors
(14) Powers of Attorney
</TABLE>
_________________________________________________________
*Page numbers included only in manually executed original.
<PAGE>
CERTIFICATION OF NAME CHANGE
The undersigned, being a duly authorized officer of PFL Life Insurance Company
hereby certifies as follows:
Effective April 18, 1996, the name of the "PFL Endeavor Variable Annuity
Account" has been changed to the "PFL Endeavor VA Separate Account." The PFL
Endeavor VA Separate Account is currently comprised of two portions: the "PFL
Endeavor Variable Annuity Account," and the "PFL Endeavor Platinum Variable
Annuity Account," each with separate assets supporting various annuity
contracts, and separate books, records and audited financial statements.
April 18, 1995
/s/ Ronald L. Ziegler
-----------------------------
Ronald L. Ziegler
Vice President and Actuary
PFL Life Insurance Company
<PAGE>
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Independent
Auditors" and "Financial Statements", to the use of our report dated February 6,
1996 with respect to the financial statements of The PFL Endeavor Variable
Annuity Account, and to the use of our report dated February 23, 1996 with
respect to the statutory-basis financial statements of PFL Life Insurance
Company, included in Amendment No. 11 to Registration Statement (Form N-4 No.
33-33085) and related Prospectus of The PFL Endeavor Variable Annuity Account.
ERNST & YOUNG LLP
Des Moines, Iowa
April 19, 1996
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO
PFL ENDEAVOR VARIABLE ANNUITY
Know all men be these presents that Craig D. Vermie, whose signature
appears below, constitutes and appoints Larry G. Brown and Craig D.
Vermie, and each of them, his attorneys-in-fact, each with the power
of substitution, for him in any and all capacities, to sign any
registration statements and amendments thereto for the PFL Endeavor
Variable Annuity, and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of
said attorneys-in-fact, or his substitute, may do or cause to be done
by virtue hereof.
/s/ Craig D. Vermie
-------------------------
Craig D. Vermie
Director
PFL Life Insurance Company
April 24, 1996
--------------
Date
